Capital Market Laboratories

About the Author Capital Market Laboratories

Ophir Gottlieb (CEO & Co-founder) — Ophir Gottlieb is the CEO & Co-founder of Capital Market Laboratories (CML). CML is a member of the famed Thomson First Call roster, but our purpose is to provide institutional research to all investors and break the information monopoly held by the top .1% You can follow his stock research, called CML Pro, here: You can use the option-backtester here: Ophir contributes to Yahoo! Finance and MarketWatch and generates nearly one and a half million readers a month. He was rated the 14th best finance follow on all of Twitter. Ophir Gottlieb is inventor of the Forensic Alpha Model (FAM) and a co-inventor of Accounting and Governance Risk Model (AGR), both now owned commercially by MSCI. Mr. Gottlieb’s methodological approach taken in creating FAM was endorsed by the head of artificial intelligence for the state of Germany as a novel and extraordinary application of advanced machine learning and quantitative finance. FAM and AGR are used by asset managers worldwide with over $1 trillion of assets under management. The FAM model has made Mr. Gottlieb one of the most recognized names in all of quantitative finance. Mr Gottlieb’s mathematics, measure theory and machine learning background stems from his graduate work in mathematics and measure theory 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.

Apple (AAPL): Riding the Bullish Momentum into Earnings

By Ophir Gottlieb

There is a bullish momentum pattern in Apple Inc. (NASDAQ:AAPL) stock 25 calendar days before earnings, and we can capture that phenomenon explicitly by looking at returns in the option market.

According to our earnings date provider, Wall Street Horizon, Apple has earnings due out on 5-1-2018, after the market closes. 25 days before then would be 4-6-2018.

The Logic

The logic behind the test is easy to understand – in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in before an earnings date.

That is, totally irrespective of the reality that follows – that is, independent of whether the stocks have a history of actually rising after earnings. There has been a way to profit from this pattern without taking any formal earnings risk in Apple Inc.

The Bullish Option Trade Before Earnings in Apple

We will examine the outcome of getting long a monthly call option (which has the earnings date in the expiry) in Apple Inc. 25-days before earnings (using calendar days) and selling the call before the earnings announcement but on that day.

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.

Risk Management

We can add another layer of risk management to the back-test by instituting and 75% stop loss and a 50% limit gain. Here is that setting:

In English, at the close of each trading day we check to see if the long option is either up 50% or down 75% relative to the open price. If it was, the trade was closed.


Here are the results over the last three-years in Apple Inc:

AAPL: Long 40 Delta Call
% Wins: 83.3%
Wins: 10   Losses: 2
% Return: 411%

Tap Here to See the Back-test

The mechanics of the TradeMachine are that it uses end of day prices for every back-test entry and exit (every trigger).

We see a 411% return, testing this over the last 12 earnings dates in Apple.

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 411%, the trade details keep us in bounds with expectations:

➡ The average percent return per trade was 41.6%.
➡ The average percent return per winning trade was 65.4%.
➡ The average percent return per losing trade was -77.3%.

We do note that the losses did in fact hit the limits – so a loss hurt, no doubt. We also note that the stock price didn’t just go straight up, it was a winding path, but ultimately it was decidedly up for the overwhelming majority of the time.

Results – The Last Year

Here are the results over the last year in Apple Inc:

AAPL: Long 40 Delta Call
% Wins: 100%
Wins: 4   Losses: 0
% Return: 314%

Tap Here to See the Back-test

Is This Just Because Of a Bull Market?

It’s a fair question to ask if these returns are simply a reflection of a bull market rather than a successful strategy. It turns out that this phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the “Great Recession.”

The average return for this strategy, by stock, using the Nasdaq 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 7 days.


Disclaimer: The author holds shares of AAPL. The author is not receiving compensation for this article. This article is intended for informational and entertainment use only, and should not be construed as professional investment advice.

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