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

  • Investing in Private Companies

    It is axiomatic that the largest investment returns typically come from investing in private companies. Peter Thiel initially invested $500,000.00 in Facebook, which was worth over $1b when he cashed out.  Eric Lefkofsky turned an investment of $546 (that’s not a typo) into $386m in cashed out payments.

    By cwelsh,

    • 0 comments
    • 68 views
  • Option Strikes and Expirations – What's Next?

    Options expiration dates and strikes are among the most important parameters options traders must consider. Today we have the well-known weekly, monthly, cyclical, and LEAPS options. A lot of choices. But is that as far as we can go? The realm of possibilities could be endless. Consider some of these possible expansions:

    By Michael C. Thomsett,

    • 0 comments
    • 163 views
  • Buying Deep Out-Of-The-Money (DOTM) Options

    “Income” trading has become wildly popular for option traders since the global financial crisis. This style involves selling out-of-the-money options to a hedger and collecting the full premium payment at expiry — assuming the underlying doesn’t trend too hard in one direction.

    By Tyler Kling,

    • 0 comments
    • 456 views
  • The ABCs of QE And QT

    Is QE money printing or is it something else that appears to be money printing? Search the internet for “QE and money printing”, and you will see countless articles explaining why Quantitative Easing (QE) is or is not money printing. Here are a few articles that we found:

    By Michael Lebowitz,

    • 0 comments
    • 137 views
  • A Case Study in SPX Put Writing

    I've written about writing puts on multiple occasions, as I find it to be an attractive way to gain long exposure to the underlying asset class. It doesn't have to be a decision of one vs. the other (meaning, is it better to sell puts or own the underlying asset directly?), as there are advantages and disadvantages to both.

    By Jesse,

    • 0 comments
    • 236 views
  • 10 Tips: Trade Options Like a Pro and Keep Your Day Job

    Do you feel you don't have time to trade options?  This is one of the most common objections I hear from potential traders. In this article I'll give you 10 actionable tips to trade options like a pro while you balance life's other commitments.

    By Drew Hilleshiem,

    • 0 comments
    • 592 views
  • Straddles - Risks Determine When They Are Best Used

    Risk all too often is defined by the attributes of a strategy, and nothing more. However, the circumstances under which a position is opened is a better indicator of actual risk. Why? Because risk is not fixed but varies based on proximity of price to strike, and of strike to resistance or support.

    By Michael C. Thomsett,

    • 0 comments
    • 359 views
  • 4 Directional Options Trading Strategies

    Some Option traders prefer to trade mostly non directional strategies, while other option traders prefer to trade directional strategies.  Well, in the world of Options trading, there is no right or wrong answer. You can create a host of strategies based on your preferences and outlook.

    By Kim,

    • 0 comments
    • 510 views
  • Digging Deeper into the Inflation Threat

    Stoking the Embers of Inflation is one of the more important articles we have written. The Monetary Equation Identity discussed in the article provides a counterintuitive way to think about inflation. It took us a long time to accept that this identity lays out a real case for stagflation.

    By Michael Lebowitz,

    • 3 comments
    • 1,189 views
  • Does Option Selling Have Positive Expected Returns?

    Academic research refers to the persistent phenomenon of ex-post implied volatility (IV) exceeding realized volatility (HV) as the Volatility Risk Premium (VRP). As it applies to option premiums, this leads to a positive expected return for being a systematic option seller.

    By Jesse,

    • 0 comments
    • 659 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...

Options Trading Blogs