Institutions expect some stocks to have a large price increase after a positive earnings report leading to major buying pressure right after the earnings announcement which will push the price higher.
Delphian calls this strategy a Bullish Runner and based on historical analysis, the price typically increases from 1-20 days after earnings.
An excellent example of this is Align Technology, Inc (ALGN), within the 15 days after its earnings it has had an average move of over 5% for 13 of the past 16 quarters.
The bullish runner strategy tries to capture a 25-50% gain for a long call 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 calls as the primary strategy as multiple option legs are typically not optimal for the rapid price increase.
Short strategies like naked puts are strategies to analyze further based on the individual symbol and put option premiums.
Always remember, when selling naked options there is substantial risk involved.
Delphian's default bullish runner criterion involves a price change that is greater 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 call strategy for Analog Devices, Inc. (ADI) over the last 10 earnings releases, based on entering a trade with the characteristics shown above.
Over the previous 10 earnings, the long call position produced a cumulative profit of $1,231 per contract with a profit factor of 9.10 and a win rate of 90%.
The chart below displays the individual trade results for the ADI analysis performed above.
Bullish 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.
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