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

  • Diversified Leveraged Anchor Performance

    In our continued efforts to improve the Anchor strategy, in April of this year we began tracking a Diversified Leveraged Anchor strategy, under the theory that, over time, a diversified portfolio performs better than an undiversified portfolio in numerous metrics.  Not only does overall performance tend to increase, but volatility and drawdowns tend to decrease:

    By cwelsh,

    • 1 comment
    • 199 views
  • The Best Chart I’ve Seen in 2020

    The best visual aids for learning are often very simple. The chart in this article was created by Paul Merriman, using data from Dimensional Fund Advisors. I primarily use Dimensional Funds in building portfolios for my clients. There are many takeaways from this chart, and I’d like to share a few thoughts that stick out most to me.

    By Jesse,

    • 0 comments
    • 197 views
  • Traditional or Roth Retirement Account?

    When US investors save for retirement, there are many important decisions that have to be made including which investments to use as well as which type of accounts to fund. Tax favored retirement accounts such as 401(k)’s and IRA’s should be utilized to the maximum extent possible because of the opportunity for tax advantaged growth.

    By Jesse,

    • 0 comments
    • 272 views
  • My Favorite Investing Books, Blogs, Papers, and Podcasts

    There are so many excellent sources of investment education available today that I thought a short post about some of my personal favorites could be beneficial. Below are different forms of content that have been particularly impactful to my investment philosophy, and they are not in any specific order.

    By Jesse,

    • 0 comments
    • 536 views
  • Go For Gold! The Business Behind The Dazzle

    The price of gold is often in the news—sometimes it's rising, and other times it's dropping but for the most part, it has been on a steady increase for many years. It is certainly worth more now than it did twenty years ago. When its price is on the rise, we may have thought about the benefits of selling our gold for profit and making some passive income from it.

    By Kim,

    • 0 comments
    • 313 views
  • Using Bullish Calendar Spreads to Profit on MSFT Stock

    A calendar spread is an income trade where the trader sells a near term option and buys a longer-dated option with the same strike price. Usually this is done with monthly options, but it can also be done with weeklies. They are long volatility trades so can be a nice addition to a portfolio as a way to offset some short vega.

    By GavinMcMaster,

    • 0 comments
    • 606 views
  • 3 Principles to a Successful Investment Experience

    Although not an exhaustive list, what I’ll present in this article are three core principles that overwhelmingly stack the odds of a successful long-term investment experience in your favor. These three principles are asset allocation, diversification, and rebalancing.

    By Jesse,

    • 0 comments
    • 430 views
  • Important Tips For First Time Currency Traders

    Diversifying your portfolio is important for all investors, and currency investments are a great way to do that. However, there are a lot of misconceptions and common mistakes that first time currency investors make, and this leads to big losses.

    By Kim,

    • 0 comments
    • 453 views
  • Iron Condors or Short Strangles?

    In my early option trading days, I favored selling iron condors over selling strangles. I thought that selling a strangle was too risky because the potential loss was “undefined”. I thought this made sense because this is what I’d hear from other people that were more experienced than I was.

    By Jesse,

    • 0 comments
    • 1,955 views
  • How To Be A Successful Day Trader From Home

    The good news is that if trading is your passion, then it’s possible to become a successful day trader and work from home. However, it’s not as easy as setting up shop and jumping online. There are specific steps and processes you need to have in place if you’re going to be able to make a living for yourself and have a bright career and future.

    By Kim,

    • 0 comments
    • 592 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


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 emoji 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 Expertido