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Trading Earnings Optimism With Options in Knight-Swift Transportation Holdings Inc

Trading Earnings Optimism With Options in Knight-Swift Transportation Holdings Inc



Knight-Swift Transportation Holdings Inc (NYSE:KNX) : Trading Earnings Optimism With Options


Date Published:

Disclaimer

The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.


Preface

There is a powerful pattern of optimism and momentum in Knight-Swift Transportation Holdings Inc (NYSE:KNX) stock right before of earnings, and we can capture that pattern by looking at returns in the option market. The strategy won't work forever, and in fact, it hasn't even won more often than it has lost, but since this strategy has a celever risk control, the winning trades are so much larger than the losing trades, that it has returned 239% annualized returns.

PREMISE

The premise is simple -- one of the least recognized but most important phenomena surrounding this bull market is the amount of optimism, or upward momentum, that sets in the two-weeks before an earnings announcement. Now we can see it in Knight-Swift Transportation Holdings Inc.

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The Options Optimism Trade Before Earnings in Knight-Swift Transportation Holdings Inc

Let's look at the results of buying a monthly call option in Knight-Swift Transportation Holdings Inc two-weeks before earnings (using calendar days) and selling the call before the earnings announcement.

Here's the set-up in great clarity; again, note that the trade closes before earnings, so this trade does not make a bet on the earnings result.



Now, unlike many of our other set-ups, this is in fact a straight down the middle bullish bet -- this absolutely takes on directional stock risk, so let's be conscious of that before we see the results, because they are mind bending.

Here are the results over the last three-years in Knight-Swift Transportation Holdings Inc:

KNX: Long Call

% Wins: 50%
Wins: 6 Losses: 6
% Return:  109.9% 

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The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).



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We see a 109.9% return, testing this over the last 12 earnings dates in Knight-Swift Transportation Holdings Inc. That's a total of just 168 days (14 days for each earnings date, over 12 earnings dates). That's an annualized rate of 239%. That's the power of following the trend of optimism into earnings -- and never even worrying about the actual earnings result.

We can also see that this strategy hasn't been a winner all the time, rather it has won 6 times and lost 6 times, for a 50% win-rate and again, that 109.9% return in less than six-full months of trading. The trade will lose sometimes, but over the most recent trading history, this momentum and optimism options trade has won ahead of earnings.

Setting Expectations

While this strategy had an overall return of 109.9%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 7.55%.



WHAT HAPPENED

The personality of this bull market is one that shows optimism before earnings -- irrespective of the actual earnings result. That has been a tradable phenomenon in Knight-Swift Transportation Holdings Inc.

Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.