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Trading Momentum into Earnings Optimism With Options in Adobe Systems Incorporated

Trading Momentum into Earnings Optimism With Options in Adobe Systems Incorporated



Adobe Systems Incorporated (NSDQ:ADBE) : Trading Momentum into 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 Adobe Systems Incorporated (NSDQ:ADBE) 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, but for now it is a momentum play that has not only returned 687% annualized returns, but has also shown a high win-rate of 63%.

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 Adobe Systems Incorporated.

Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth


The Options Optimism Trade Before Earnings in Adobe Systems Incorporated

Let's look at the results of buying a monthly call option in Adobe Systems Incorporated 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.

Here are the results over the last two-years in Adobe Systems Incorporated:

ADBE: Long Call

% Wins: 63%
Wins: 5 Losses: 3
% Return:  210.7% 

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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 210.7% return, testing this over the last 8 earnings dates in Adobe Systems Incorporated. That's a total of just 112 days (14 days for each earnings date, over 8 earnings dates). That's an annualized rate of 687%. 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 5 times and lost 3 times, for a 63% win-rate and again, that 210.7% 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 210.7%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 30.25%.


Checking More Time Periods in Adobe Systems Incorporated

Now we can look at just the last year as well:

ADBE: Long Call

% Wins: 75.00%
Wins: 3 Losses: 1
% Return:  70.5% 

Tap Here to See the Back-test

We're now looking at 70.5% returns, on 3 winning trades and 1 losing trades. It's worth noting again that we are only talking about two-weeks of trading for each earnings release, so this is 70.5% in just 8-weeks of total trading which annualizes to 460%.
      The average percent return over the last year per trade was 23.13%.

WHAT HAPPENED

Bull markets have quirks, or personalities if you like.

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 Adobe Systems Incorporated.

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.