SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Option Trade After Earnings in AutoZone


AutoZone Inc (NYSE:AZO) has earnings due out tomorrow, 9-19-2017 before the market opens and we can look at a slightly advanced option trade that starts two calendar days after AZO earnings (9-21-2017) and lasts for the 19 calendar days to follow, that has been a winner for the last 3 years. 

For AutoZone Inc, irrespective of whether the earnings move was up or down, if we waited two-days after the stock move, and then sold a 3-week at out of the money iron condor (using monthly options), the results were quite strong. This trade opens two calendar after earnings were announced to try to let the stock find equilibrium after the earnings announcement. 


We can test this approach without bias with a custom option back-test. Here is our earnings set-up: 
 
setup_2_21_earnings.png


Rules 
* Open the short iron condor two calendar days after earnings 
* Close the iron condor 21 calendar days after earnings 
* Use the options closest to 30 days from expiration (but at least 21-days). 

And a note before we see the results: This is a straight down the middle volatility bet -- this trade wins if the stock is not volatile the three weeks following earnings and it will stand to lose if the stock is volatile. 

RISK MANAGEMENT 
We can add another layer of risk management to the back-test by instituting and 40% stop loss and a 40% limit gain. Here is that setting: 

 
setup_4040_limit.png


In English, at the close of each trading day we check to see if the entire iron condor is either up or down 40% relative to the open price. If it was, the trade was closed. 

Trade Discovery 
We found this trade by using the TradeMachine® Pro scanner, looking at the S&P 500, post-earnings back-tests and specifically the short iron condor. Then we looked at 3-year back-tests and sorted by earnings date. 

 
setup_scan_21daysic_SPX.PNG


We can see AZO has the highest win rate and a rather large historical returns. 
 
AZOscan.PNG


This can be a nice diversification for those with generally long volatility positions (long options). We do note the rather hectic stock price move after the latest earnings results were announced and a general downward trend. Here is a stock chart: 
 
AZOcharts_917.PNG



The back-tester computes all calculations using end of day prices, so two-days after earnings would be 9-21-2017 at (or near) the close. 

To adjust an iron condor so that it is symmetric to downside and upside risk, you can read about option skew and the impact on iron condors here: 
Option Skew -- What it is and Why It Exists 


risk_reward.jpg


RESULTS 
If we sold this 35/15 delta iron condor in AutoZone Inc (NYSE:AZO) over the last three-years but only held it after earnings we get these results: 


Capture.PNG


We see a 282.5% return, testing this over the last 12 earnings dates in AutoZone Inc. That's a total of just 228 days (19 days for each earnings date, over 12 earnings dates). 

We can also see that this strategy hasn't been a winner all the time, rather it has won 11 times and lost 1 times, for a 92% win-rate. 

Setting Expectations 
While this strategy had an overall return of 282.5%, the trade details keep us in bounds with expectations: 
       The average percent return per trade was 22.82% over 19-days. 
       The average percent return per winning trade was 24.94% over 19-days. 
       The average percent return per losing trade was -0.51% over 19-days. 

Over the Last Year 
We can see similarly strong results over the last year:

Capture.PNG


We see a 97% return, testing this over the last 4 earnings dates in AutoZone Inc, with 4 wins and 0 losses in that short-time period. 

Setting Expectations 
While this strategy had an overall return of 97%, the trade details keep us in bounds with expectations: 
       The average percent return per trade was 29% over 19-days. 

WHAT HAPPENED 
This is it -- this is how people profit from the option market -- finding trading opportunities that avoid earnings risk and work equally well during a bull or bear market. 

To see how to do this for any stock we welcome you to watch this quick demonstration video: 

Tap Here to See the Tools at Work

Thanks for reading. 

Risk Disclosure 
You should read the Characteristics and Risks of Standardized Options. 

Past performance is not an indication of future results. 

Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. 

Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Pre-earnings Momentum Trade in Netflix

    Netflix has earnings due out Monday, October 16th, after the market closes. Seven calendar days before then would be 10-9-2017. Coming off of a nice win in THO, now it's time to look at the company's remarkable history of momentum into earnings events and how it compares to FAANG more broadly. 

    By Ophir Gottlieb,

    • 1 comment
    • 530 views
  • Microsoft Pre-earnings Momentum Trade

    Microsoft has earnings due out on October 26th, 2017, after the market close, according to Wall Street Horizon. 7-days before then would be October 19th, 2017. Microsoft is the forgotten mega tech -- the third largest company in the world behind Apple and Alphabet, but it doesn't fall into any fun Acronyms, like FANG, or FAANG. 

    By Ophir Gottlieb,

    • 14 comments
    • 778 views
  • Options Greeks Explained

    Options Greeks measure the different factors that affect the price of an option contract. Unfortunately, many traders do not know how to read the Greeks when trading. The following infographic provided a brief explanation of the most important Greeks: theta, delta, gamma vega and rho.

    By Kim,

    • 0 comments
    • 313 views
  • Option Trade After Earnings in AutoZone

    AutoZone Inc (NYSE:AZO) has earnings due out tomorrow, 9-19-2017 before the market opens and we can look at a slightly advanced option trade that starts two calendar days after AZO earnings (9-21-2017) and lasts for the 19 calendar days to follow, that has been a winner for the last 3 years. 

    By Ophir Gottlieb,

    • 0 comments
    • 406 views
  • Why Winning Ratio Means Nothing

    A lot of options traders consider 90% probability strategies a Holy Grail of trading. After all, if you can win 90% of the time, you should be able to grow your account very quickly, right? Well, not only this is not true, but in fact, winning ratio alone tells you NOTHING about your chances to be profitable. 

    By Kim,

    • 0 comments
    • 1,951 views
  • Post Earnings Option Trade in Facebook

    For Facebook Inc, irrespective of whether the earnings move was up or down, if we waited one-day, and then sold an one-week at out of the money iron condor (using weekly options), the results were quite strong. This trade opens two calendar after earnings to try to let the stock find equilibrium after the earnings announcement. 

    By Ophir Gottlieb,

    • 0 comments
    • 333 views
  • The Incredible Option Trade in VXX

    The iPath S&P 500 VIX Short Term Futures TM ETN (NYSEARCA:VXX) is referred to as "the VXX.". The obligation of the VXX is to match the performance of the S&P 500 VIX Short-Term Futures Index Total Return and that is a strategy index which maintains positions in the front two-month Volatility Index (VIX) futures contracts. 

    By Ophir Gottlieb,

    • 0 comments
    • 763 views
  • The Art of Trading Decisions

    One of my basic tenets in teaching people how to trade options is that rules and guidelines should not be written in stone and that there are valid reasons for accepting or rejecting some of them. When I offer a rationale or explanation or suggest course of action, it is because I have found that this specific suggestion has worked best for me.

    By MarkWolfinger,

    • 0 comments
    • 351 views
  • Trade Iron Condors Like Never Before

    Iron Condors have gained a lot of popularity among professional money managers and retail investors. It is a market neutral strategy that allows you to profit when the underlying price moves sideways. Iron Condors usually have a limited risk and a high probability of success.

    By Kim,

    • 2 comments
    • 6,609 views
  • Early Exercise: Call Options

    How would a trader like you decide to do early exercise? Say you bought calls when they were trading in the 1.0 -> 2.5 range, now underlying has risen so that calls trade bid-ask at 4.0 / 4.8 and there is strong possibility of it going higher. Also assume in another case that they trade in the 6.0 to 7.0 range.

    By MarkWolfinger,

    • 0 comments
    • 1,854 views

  Report Article

We want to hear from you!


There are no comments to display.



Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoticons maximum are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...