Trading Momentum into Earnings Optimism With Options in Encore Capital Group Inc

Trading Momentum into Earnings Optimism With Options in Encore Capital Group Inc

Encore Capital Group Inc (NSDQ:ECPG) : Trading Momentum into Earnings Optimism With Options

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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.


There is a powerful pattern of optimism and momentum in Encore Capital Group Inc (NSDQ:ECPG) 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 128% annualized returns, but has also shown a high win-rate of 56%.


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 Encore Capital Group Inc.

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The Options Optimism Trade Before Earnings in Encore Capital Group Inc

Let's look at the results of buying a monthly call option in Encore Capital Group 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 two-years in Encore Capital Group Inc:

ECPG: Long Call

% Wins: 56%
Wins: 5 Losses: 4
% Return:  44.3% 

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We see a 44.3% return, testing this over the last 9 earnings dates in Encore Capital Group Inc. That's a total of just 126 days (14 days for each earnings date, over 9 earnings dates). That's an annualized rate of 128%. 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 4 times, for a 56% win-rate and again, that 44.3% 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 44.3%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 8.38%.


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 Encore Capital Group 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.