Short-term Option Swing Trading Ahead of Earnings in Caterpillar Inc – CML News

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PREFACE
There is a pattern of bullish momentum in Caterpillar Inc (NYSE:CAT) stock just days before earnings, and we can track that by looking at swing returns in the option market. The strategy won’t work forever, it can be easily derailed by a couple of down days in the market irrespective of Caterpillar Inc news, and in fact, it hasn’t even won more often than it has lost, but since the profits from the winning trades are so much larger than the losing trades, that it has returned 965% annualized returns.

IDEA
The idea is quite simple — 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.

That is, totally independent of whether the stocks have a pattern of beating earnings, in the 3-days before earnings, there is a small group that have risen sharply ahead of the actual news. It’s essentially bullish optimism in a very short-term window. There has been a way to use a short-term trade and generate profits from this tendency and it does not take earnings risk.