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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. 

 

Facebook Inc (NASDAQ:FB) Earnings 


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

 

setup_2_7_after_custom_e.PNG



Rules 
* Open the short iron condor two calendar days after earnings 
* Close the iron condor 7 calendar days after earnings 
* Use the options closest to 7 days from expiration (but at least 7-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 week following earnings and it will stand to lose if the stock is volatile. 

RESULTS 
If we sold this 40/20 delta iron condor in Facebook Inc (NASDAQ:FB) over the last three-years but only held it after earnings we get these results: 

 

FB: Short
40 Delta / 20 Delta 
Iron Condor
 
% Wins: 67%
 
Wins: 8   Losses: 4
 
% Return:  49.5% 


We see a 49.5% return, testing this over the last 12 earnings dates in Facebook Inc. That's a total of just 60 days (5 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 8 times and lost 4 times, for a 67% win-rate. 

Setting Expectations 
While this strategy had an overall return of 49.5%, the trade details keep us in bounds with expectations: 
       The average percent return per trade was 7.78% over 5-days. 

WHAT HAPPENED 
This is it -- this is how people profit from the option market -- it's not about guessing; ever. 

We hope, if nothing else, you have learned about Facebook Inc (NASDAQ:FB) and the intelligence and methodology of option trading and this idea of equilibrium right after earnings.

To see how to find the best strategy 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.

 

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