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.

TSLA, LNKD, NFLX, GOOG: Thank You, See You Next Cycle


Our long term followers know that buying premium into earnings is one of our favorite strategies. I wrote about the strategy in my Seeking Alpha article Exploiting Earnings Associated Rising Volatility. IV (Implied Volatility) usually increases sharply a few days before earnings, and the increase should compensate for the negative theta. We have been using this strategy in our SteadyOptions model portfolio with great success.

However, not all stocks are suitable for that strategy. Some stocks experience consistent pattern of losses when buying premium before earnings. For those stocks we are using some alternative strategies like calendars.

 

In one of my previous articles I described a study done by tastytrade, claiming that buying premium before earnings does not work. Let's leave aside the fact that the study was severely flawed and skewed by buying "future ATM straddle" which simply doesn't make sense (see the article for full details). Today I want to talk about the stocks they used in the study: TSLA, LNKD, NFLX, AAPL, GOOG.

 

Those stocks are among the worst candidates for a straddle option strategy. In fact, they are so bad that they became our best candidates for a calendar spread strategy (which is basically the opposite of a straddle strategy). Here are our results from trading those stocks in the recent cycles:

  • TSLA: +28%, +31%, +37%, +26%, +26%, +23%
  • LNKD: +30%, +5%, +40%, +33%
  • NFLX: +10%, +20%, +30%, +16%, +30%, +32%, +18%
  • GOOG: +33%, +33%, +50%, -7%, +26%

 

You read this right: 21 winners, only one small loser.

 

This cycle was no exception: all four trades were winners, with average gain of 25.2%.

 

I'm not sure if tastytrade used those stocks on purpose to reach the conclusion they wanted to reach, but the fact remains. To do a reliable study, it is not enough to take a random list of stocks and reach a conclusion that a strategy doesn't work.

 

At SteadyOptions we spend hundreds of hours of backtesting to find the best parameters for our trades:

  • Which strategy is suitable for which stocks?
  • When is the optimal time to enter?
  • How to manage the position?
  • When to take profits?

 

The results speak for themselves. We booked 147% ROI in 2014 and 32% ROI so far in 2015. All results are based on real trades, not some kind of hypothetical or backtested random study.

 

Related Articles:

How We Trade Straddle Option Strategy

How We Trade Calendar Spreads

Buying Premium Prior to Earnings
Can We Profit From Volatility Expansion into Earnings
Long Straddle: A Guaranteed Win?
Why We Sell Our Straddles Before Earnings

The Less Risky Way To Trade TSLA

 

If you want to learn more how to use our profitable strategies and increase your odds:

 

Start Your Free Trial

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

  • Building a Short Strangles Portfolio

    In my last article I showed you what you can expect selling short strangles and straddles and how much leverage is appropriate. Today I want to show you how to build a well diversified short strangle/straddle portfolio and how to trade it through difficult times.

    By Stephan Haller,

    • 1 comment
    • 154 views
  • Selling Short Strangles and Straddles - Does it Work?

    I have seen a lot of discussions on Twitter lately about the issue if selling naked strangles or straddles is a great strategy or a recipe for disaster. If you have read my books or if you are following my sample portfolio, you know that I'm a huge fan of selling short strangles and straddles.

    By Stephan Haller,

    • 42 comments
    • 687 views
  • Who Wants The Last Nickel?

    “The safest way to double your money is to fold it over and put it in your pocket.” Kin Hubbard. In this article I will discuss the reasoning behind buying back the short options and not waiting till expiration. Two of my basic trading tenets are related:   

    By Mark Wolfinger,

    • 0 comments
    • 22 views
  • Debunking the "Trading Options for Income" Myth

    "Real trading system returns are too irregular in the short term for consistent weekly returns every time and the only 'trader' that every had regular monthly returns was Bernie Madoff" - Steve Burns. So true. This is why "trading options for income" promoted by some options "gurus" is so misleading.

    By Kim,

    • 0 comments
    • 318 views
  • Selling Naked Strangles: The Math

    Selling short (naked) strangles is heavily promoted by some options "gurus". Is it a good strategy? It might have an unlimited (theoretical) risk, but what about the return? Is the return worth the risk? We decided to do some math, based on real prices, not some theoretical "studies".

    By Kim,

    • 5 comments
    • 480 views
  • Don’t Buy Thanksgiving Turkeys as Investments

    Nassim Taleb tells a great story about Thanksgiving turkey’s in his 2007 book, The Black Swan. "Consider a turkey that is fed every day…Every single feeding will firm up the bird's belief that it is the general rule of life to be fed every day by friendly members of the human race 'looking out for its best interests,' as a politician would say.

    By Jesse,

    • 0 comments
    • 142 views
  • Obey Reality and Win by Not Losing

    “I’ll do anything to lose weight (except diet and exercise),” is the same kind of magical thinking by investors who will do anything to outperform the market except study and practice discipline. It takes novice investors about a year to realize that you can’t consistently beat or time the market buying individual stocks or funds.

    By Kim,

    • 0 comments
    • 159 views
  • Follow Your Plan: Don’t Engage in Reckless Trading

    Setting up some internal rules for your trading looks like a must first-step before setting up your account and getting into your platform. You need to get your own trading plan and then stick to it. Self-discipline and avoiding recklessness can be huge for your balance.

    By Kim,

    • 0 comments
    • 225 views
  • 4 Patterns For Forex Profitability

    What makes a forex trader profitable? Looking at a wide array of real data, four patterns are found. Timing is critical. The best time to trade is not necessarily what you thought it would be, and it certainly depends on the trading style.

    By Kim,

    • 0 comments
    • 274 views
  • Long and Short Straddles: Opposite Structures

    Simplification: We can all better understand options trading by removing the complexity so often seen in articles. One of the best ways to understand the profit potential and risk levels of any options strategy is through diagrams and a demonstration of the formula.

    By Michael C. Thomsett,

    • 0 comments
    • 317 views

  Report Article

We want to hear from you!


Guest BIOTRADER

Posted

Kim, just to be clear. A calendar is not the opposite of a long straddle. It's has a much different risk profile.

If those are the worst straddle candidates what are the best?

Share this comment


Link to comment
Share on other sites

Opposite might be not the best choice of words. However:

 

Straddle is theta negative, gamma positive trade, while calendar is theta positive, gamma negative.

 

Straddle makes money when the stock moves, calendar loses money when the stock moves. So they are kind of opposite strategies. Even the risk profiles look "upside down".

 

There are many good candidates for straddles. We usually made very good gains with RL, OVTI, INTC, MSFT, NKE, AZO, ORCL among others.

Share this comment


Link to comment
Share on other sites

Kim ..  Very informative.Thanks! I have a couple of follow up questions.
 
 

Those stocks are among the worst candidates for a straddle

 

Can you please explain what makes these (TSLA, LNKD, NFLX, AAPL, GOOG) worst candidates for a long straddle ?

 

There are many good candidates for straddles.

I am curious to know your criteria for picking candidates for Calendar vs Straddle.

Share this comment


Link to comment
Share on other sites

It is based mostly on backtesting. Some stocks are consistently losing money when using straddles. The IV is simply too high and is not keeping up with the negative theta.

Share this comment


Link to comment
Share on other sites

Thanks Kim. If I understood you correctly, a long straddle is vega positive and theta negative.

With already high IV when you enter the trade, the vega gains for these is lower than the theta loss. 

 

Does it make sense to enter the long straddle a few days earlier, before the IV gets very high ? Let me know your thoughts.

Share this comment


Link to comment
Share on other sites

From my experience, the best timeframe to enter is around 5-10 days before earnings. Entering earlier will usually pay off only if the stock starts to move. But it also depends on the price, history of the stock etc. Each stock is different. This is why we do extensive backtesting to determine the best price and timing to enter.

Share this comment


Link to comment
Share on other sites


Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs