The One-Week Pre-earnings Momentum Trade With Options in Aqua America Inc – CML News

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Disclaimer
The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.

PREFACE
There is a bullish momentum pattern in Aqua America Inc (NYSE:WTR) stock 7 calendar days before earnings, and we can capture that phenomenon explicitly by looking at returns in the option market. The strategy won’t work forever, but for now it is a momentum play that has not only returned 243.3%, but has also shown a win-rate of 75%.

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 the one-week before an earnings date.

That is, totally irrespective of the reality that follows — that is, independant 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 Aqua America Inc.