Swing Trading Earnings Bullish Momentum With Options In E Trade Financial Corporation

Swing Trading Earnings Bullish Momentum With Options in E*TRADE Financial Corporation

E*TRADE Financial Corporation (NASDAQ:ETFC) : Swing Trading Earnings Bullish Momentum With Options

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There is a pattern of bullish momentum in E*TRADE Financial Corporation (NASDAQ:ETFC) stock just days before earnings, and we can track that by looking at swing returns in the option market. This is a short-term swing trade, it won't be a winner forever, and it can be easily derailed by a couple of down days in the market irrespective of E*TRADE Financial Corporation news, but for now it has shown a repeating success that has not only returned 1,027% annualized returns, but has also shown a win-rate of 63%.

The idea is quite simple -- trying to take advantage of a pattern in short-term bullishness just before earnings, and then getting out of the way so no actual earnings risk is taken. Now we can see it in E*TRADE Financial Corporation.

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The Short-term Option Swing Trade Ahead of Earnings in E*TRADE Financial Corporation
We will examine the outcome of going long a monthly call option in E*TRADE Financial Corporation just three calendar days before earnings and selling the call one day before the actual news.

This is construct of the trade, noting that the short-term trade closes before earnings and therefore does not take a position on the earnings result.

Often times we look at option set-ups that are longer-term, and take no directional bet -- this is not one of those times. This is a no hold barred short-term bullish swing trade with options and that's it. It's a bullish bet, so must be conscious of the delta risk.

Below we present the back-test stats over the last two-years in E*TRADE Financial Corporation:

ETFC: Long 40 Delta Call

% Wins: 63%
Wins: 5 Losses: 3
% Return:  45% 
% Annualized:  1,027% 

We see a 45% return, testing this over the last 8 earnings dates in E*TRADE Financial Corporation. That's a total of just 16 days (2-day holding period for each earnings date, over 8 earnings dates). That's an annualized rate of 1,027%. That's the power of following the short-term pattern of bullishness ahead earnings -- and not taking on the actual risk from the earnings outcome.

This short-term trade hasn't won every time, and it won't, but it has been a winner 5 times and lost 3 times, for a 63% win-rate and again, that 45% return in less than one-full month of actual holding period.

Setting Expectations
While this strategy has an overall return of 45%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 6.36%.

Looking at More Recent History
We did a multi-year back-test above, now we can look at just the last year:

ETFC: Long 40 Delta Call

% Wins: 75%
Wins: 3 Losses: 1
% Return:  32% 
% Annualized:  1,460% 

We're now looking at 32% returns, on 3 winning trades and 1 losing trades.
      The average percent return over the last year per trade was 7.38%.

The pattern of this bull market reveals a bullish run up before earnings in the very short-term -- independent of the realized earnings result. This has been a tradable phenomenon in E*TRADE Financial Corporation. To see how to test this for any stock we welcome you to watch the demonstration video.