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

  • How To Create Your Own Indexed Annuity

    Indexed annuities are a life insurance company product sold by insurance brokers for a commission that is based on the amount deposited into the contract. Contract performance is linked to popular indexes like S&P 500, and early withdrawal penalties typically apply for the first 7-10 years if withdrawals greater than 10% of the contract value are taken each year.

    By Jesse,

    • 0 comments
    • 879 views
  • Q&A with Mental Game Coach Jared Tendler

    QUESTION: Thank you for taking the time to participate in a Q & A session with Steady Option. Let’s start with an introduction and a little bit of background on who you are and how you got here.

    By Jared Tendler,

    • 0 comments
    • 1,103 views
  • Using TLT Options to Increase Expected Returns of a Buy & Hold Portfolio

    TLT is the iShares 20+ Year Treasury Bond ETF that seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years. Even though US Treasuries typically act as a diversifying asset class to mainstream equities, many investors with long time horizons may not be interested in holding TLT in their portfolio because it would lower expected returns.

    By Jesse,

    • 0 comments
    • 1,316 views
  • Tax Efficient Trading Part II: Capital Gains Deferral

    In part I I illustrated how the preferential tax treatment of 1256 contracts could improve after tax returns of a PutWrite strategy over a long period of time. In this article, I’ll continue the illustration by switching from a PutWrite to an ETF BuyWrite (covered calls) strategy while holding pre-tax expected returns constant at 8%.

    By Jesse,

    • 0 comments
    • 1,619 views
  • Tax Efficient Trading Part I: The 1256 Contracts

    Cash settled index options like SPX, XSP, RUT and a few others receive special federal tax treatment where 60% of the gains are reported as a Long Term Capital Gain (LTCG) even if the contract was held for less than a year.

    By Jesse,

    • 0 comments
    • 1,605 views
  • SPY Short Puts vs. Put Spreads

    In this article I’ll be using the ORATS Wheel backtesting tool to compare the performance since 2007 of SPY short puts versus short put spreads. I’ll look at both risk and returns, and different ways of determining position size to adjust for the differences in risk between the two trades.

    By Jesse,

    • 1 comment
    • 2,410 views
  • Signs that you Are Ready to Start Investing

    If you want to build your wealth, you have to make sure that you invest your money. If you put money into a savings account and don’t earn any interest from it, this won’t work for you in the long term. Your money will lose value because of inflation, and this is the last thing that you need. So when do you invest?

    By Kim,

    • 0 comments
    • 1,735 views
  • One Year of Diversified leveraged Anchor

    I almost hate to keep saying it, but the Diversified Leveraged Anchor strategy keeps exceeding expectations and performing as designed. To remind our readers, Diversified Leveraged Anchor was created in April 2020 attempting to further increase performance, reduce risk, and to reduce volatility. 

    By cwelsh,

    • 5 comments
    • 2,816 views
  • Should I Pay Off My Mortgage Early Or Invest?

    Paying off a home mortgage early is a popular financial goal. Most people feel a level financial peace when their home is paid off that is beneficial in many ways. The most common approach to paying off the mortgage early is directly making additional principal payments to the lender on a regular basis.

    By Jesse,

    • 0 comments
    • 1,339 views
  • Option Order Execution Tips

    As a community of option traders, we all can relate to the occasional challenges of order execution. Best practices for avoiding errors as well as techniques for better potential execution will be the focus of this article.  Like countless others in the Steady Options community, I personally have traded thousands of option contracts over the last decade.

    By Jesse,

    • 17 comments
    • 2,961 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 Expertido