Institutions expect some stocks to have a large selloff after a negative earnings report leading to major selling pressure right after the earnings announcement which will drive down the price.
Delphian calls this strategy a Bearish Runner and based on historical analysis, the price typically drops from 1-20 days after earnings.
An excellent example of this is Splunk, Inc. (SPLK), within the 10 days after its earnings it has had an average move of over -5% for 11 of the past 16 quarters.
The bearish runner strategy tries to capture a 25-50% gain for a long put within the 20-day window after the earnings announcement.
The trade is closed when any of the following conditions are met: Profit target is met, stop-loss is met or a time stop for 20 days after the earnings release.
The strategy uses long puts as the primary strategy as multiple option legs are typically not optimal for the rapid price drops. Short strategies like naked calls are strategies to analyze further based on the individual symbol and call option premiums.
Always remember, when selling naked call options there is unlimited risk to the upside.
Delphian's default bearish runner criterion involves a price change that is less than or equal to -3% for the 20 days after the earnings announcement for at least 7 out of last 10 earnings reports.
The screener will analyze all historical data and generate a qualifying list of stocks. The screener criterion can be customized to match an individual’s trading preferences.
Any of the fields shown below can be altered to the user’s preference.
Delphian created the Earnings Calendar so users can quickly screen and backtest symbols on one screen.
Symbols can be tested individually or as a group using the bulk testing feature.
All the trading strategy fields shown below are customizable to the user’s preferences.
Below are the results of a backtest of a long put strategy for Harley-Davidson, Inc. (HOG) over the last 10 earnings releases, based on entering a trade with the characteristics shown above.
Over the previous 10 earnings, the long put position produced a cumulative profit of $449 per contract with a profit factor of 5.99 and a win rate of 90%.
The chart below displays the individual trade results for the HOG analysis performed above.
Bearish runners trades are repeatable each quarter and a fairly simple trade to execute. After trade entry, orders can place for profit targets and stop losses so you don’t have to watch the trade constantly.
Start a trial with Delphian for only $10 and you can receive the Earning Plan for all earning strategies that we provide to our customers each quarter!
