Thursday, July 13, 2017

Trading Earnings Report

I've been testing a new strategy in my investment portfolio.  Currently up 30% for the year.  Not bad since I started in late March.  I added up my closing trades since that time and have calculated a 48% win rate, meaning half my trades are closed as winners and half are losers.

So how can I be up 30%?   Well I was able to close the losers early and make more on the winners.  So what's the strategy?

I've been testing this out for a couple years now.  In 2015, I traded using a basic strategy by buying a stock X number of days before earnings.

Earnings reports provide a known time at which the stock would self-correct either upward or downward.   

So how can you profit off this information?

This video provided a simple "straddle" option strategy.  You open six days before earnings and sell right before earnings.

It doesn't work with every stock, but it does work for some stocks.

I have a table of over 70 stocks that I'm looking at and instead of opening a straddle (buying a put and call at the same strike price), I just go for the call option.  And instead of 6 days out, I increased the length to 2-4 weeks prior to earnings report.  Over the past couple months I realize the big moves isn't just right after earnings report, there's a certain run-up right before earnings and it happens pretty gradually as the bulls and bears vie for position.

Like I said, I'm only 48% win rate and only 30% profitable this past quarter.  Earnings period is coming up fast and I'm ready to test this strategy again.  I'm hoping to up my gains by another 30%.

Note: I sell before earnings, so I don't take earnings risk which is just a coin flip.

Happy investing!