There is a powerful pattern of optimism and momentum in Meritor Inc (NYSE:MTOR) stock right before of earnings, and we can capture that pattern 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 671% annualized returns, but has also shown a high win-rate of 67%.
The premise is simple — one of the least recognized but most important phenomena surrounding this bull market is the amount of optimism, or upward momentum, that sets in the two-weeks before an earnings announcement.
That is, totally irrespective of whether the stocks have a history of beating earnings, in the two-weeks before of earnings, several of them tend to rally abruptly into the event. There has been a way to profit from this pattern without taking any actual earnings risk — and it is very powerful in Meritor Inc.
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