Options Trading & Analysis

Swing Trading Earnings Momentum in Momo (MOMO)


As we continue to look for winning patterns of bullish momentum ahead of earnings, Momo Inc is our next company to examine.

 

 

Momo Inc (NASDAQ:MOMO): Swing Trading Earnings Bullish Momentum With Options


PREFACE
With sizeable wins in Alphabet Inc (NASDAQ:GOOGL) and Marriott International Inc (NASDAQ:MAR), we continue to look for winning patterns of bullish momentum ahead of earnings. Momo Inc is our next company to examine, with earnings due out 8-22-2017 before the market opens according to NASDAQ.

We have the same disclaimer as always which is that 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 Momo Inc news, but for now it has shown a repeating success that has not only returned 208% over the last two-years, it has also shown a win-rate of 75%.

For the record, Momo Inc. operates as a mobile-based social networking platform in the People's Republic of China, so volatility could be here.

IDEA
As always, we start by defining a simple idea -- 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.

The Short-term Option Swing Trade Ahead of Earnings in Momo Inc
We will examine the outcome of going long a weekly call option in Momo Inc just three calendar days before earnings and selling the call one day before the actual news.

Below we present the back-test stats over the last two-years in Momo Inc:

MOMO: Long 40 Delta Call
 
% Wins: 75%
 
Wins: 6   Losses: 2
 
% Return:  208% 

Tap here to see the back-test


We see a 208% return, testing this over the last 8 earnings dates in Momo Inc. That's a total of just 16 days (2-day holding period for each earnings date, over 8 earnings dates). 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 6 times and lost 6 times, for a 75% win-rate.

Setting Expectations
While this strategy has an overall return of 208%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 26.6%.
      The average trade percent return per winning trade was 52.4%.
      The average percent return per losing trade was -50.7%.

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

MOMO: Long 40 Delta Call
 
% Wins: 75%
 
Wins: 3   Losses: 1
 
% Return:  398% 

Tap here to see the back-test


We're now looking at 398% returns, on 3 winning trades and 1 losing trade.
      The average percent return per trade was 65.4%.
      The average trade percent return per winning trade was 96%.
      The average percent return per losing trade (which was one-trade) was -26.5%.

This is generally the idea: Take a trade that wins more often than it loses and where the gains for the winning trades are also larger than the losses from the losing trades. Creating portfolio of these types of results will create edge.

WHAT HAPPENED
Bull markets tend to create optimism, whether it's deserved or not. This has been a tradable phenomenon in Momo Inc. To see how to test this for any stock we welcome you to watch this quick demonstration video:
Tap Here to See the Tools at Work

Risk Disclosure
You should read the Characteristics and Risks of Standardized Options.

Past performance is not an indication of future results.

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.


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About Ophir Gottlieb


Mr. Gottlieb writes financial news for CML and also as a contributor to Yahoo! Finance, CNN Money, MSN Money, and before then for Marketwatch, Business Insider, TheStreet and Real Money. He has become a staple in financial TV, often times seen on the Business News Network and CBC. Mr. Gottlieb's experience includes working as an option market maker on the NYSE ARCA exchange floor (CBOE remotely), as Managing Director of Client Services and Algorithmic Trading for Livevol, Inc, and as the Managing Director and Product Manager of Quantitative Research for GMI (now MSCI). Ophir Gottlieb is inventor of the Forensic Alpha Model (FAM) and a co-inventor of Accounting and Governance Risk Model, both purchased by MSCI. FAM has been a celebrated achievement in artificial intelligence and quantitative finance that was introduced to world by the Rotman International Journal upon its completion. Mr Gottlieb's mathematics, measure theory and machine learning background stems from his graduate work at Stanford University and his time as an option market maker on the NYSE and CBOE exchange floors. He has been cited by various financial media including Reuters, Bloomberg, Wall St. Journal, Dow Jones Newswire and through re-publications in Barron's, Forbes, SF Chronicle, Chicago Tribune and Miami Herald and is often seen on financial television.

Author's web site: http://bit.ly/2mnZAmV


View Ophir Gottlieb's post archive >

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The Options Insider Radio Network

The Options News Rundown

Your source for the most important news and information from the world of options.

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The Options Insider Radio Network

All of our radio programs in one convenient place.

The Options Insider Radio Network

Options Insider Radio

The original options podcast. Features interviews with leading options figures.

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The Option Block

This high-octane program features education, analysis, strategies and unusual activity.

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Volatility Views

The premier radio program for volatility traders.

Volatility Views

The Long And Short Of Futures Options

Your source for futures options information.

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The Advisor's Option

Arming advisors with the info necessary to manage risk.

The Advisor's Option

Options Boot Camp

Get into peak options trading shape.

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Options Insider Special Events

Compelling panel & special event recordings from the options world.

Options Insider Special Events

OIC's Wide World of Options

A dynamic mix of current events, investor resources, & strategy insights.

OIC's Wide World of Options

Trading Tech Talk

We break down all the amazing technology that takes your trades from the click of a mouse to the clearinghouse.

Trading Tech Talk

Options Playbook Radio

Break down cutting-edge options strategies and learn how to incorporate them into your portfolio

Options Playbook Radio

Options Oddities

We track all the unusual options trading activity on Options Oddities.

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This Week in Futures Options

The program designed to help active futures options traders stay on top of this ever-changing marketplace. 

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If you like business, if you like humor, if you like stock symbols, this is the podcast for you.

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