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JPM_building_2.jpg



Date Published:  
Written by Ophir Gottlieb 

LEDE 
JPMorgan Chase & Co.(NYSE:JPM) has earnings due out on July 14, 2017 before the market opens. But, the real opportunity with options isn't earnings -- it's right after earnings -- and we see a trade that has won for three-straight years without a single loss, returning 167%. 

The Trade After Earnings 
Selling a put spread every month in a stock that is rising, in hindsight, obviously looks like a great idea. But, there is a lot of risk in that trade, namely, the risk of an abrupt stock drop and a market sell-off that takes all stocks with it. So, we want to reduce the risk while not affecting the returns. 

One of our go to trade set-ups starts by asking the question if trading every month is worth it -- is it profitable -- is it worth the risk? There's an action plan that measures this exactly, and the results are powerful not just for Red Hat Inc, but for JPMorgan Chase & Co. 

Let's test the idea of selling a put spread only in the month after earnings. Here's what we mean: 
 

setup_post_earnings_timing.PNG



Our idea here is that after earnings are reported, and after the stock does all of its gymnastics, up or down, that two-days following the earnings move and for the next month, the stock is then in a quiet period. 

If it gapped down -- that gap is over. If it beat earnings, the downside move is already likely muted. Here is the set-up: 
 

setup_2_32_after_custom_e.PNG



More explicitly, the rules are: 

Rules 
* Open short put spread 2 calendar days after earnings. 
* Close short put spread 30 calendar days later. 
* Use the option that is closest to but greater than 35-days away from expiration. 

And here are the results of implementing this much finer strategy over the last three-years: 
 

JPM: Short 35/10 Delta Put Spread
 
% Wins: 100%
 
Wins: 12   Losses: 0
 
% Return:  167% 

Tap Here to See the Actual Back-test


We see a 167% winner that only traded the month following earnings and took no risk at all other times. The trade has won all 12 of the last 12 earnings cycles times, or a 100% win-rate. 

Here is how the strategy has done over the last year: 
 

JPM: Short 35/10 Delta Put Spread
 
% Wins: 100%
 
Wins: 4   Losses: 0
 
% Return:  69.3% 

Tap Here to See the Actual Back-test


Now we a 69.3% return on just four full months of trading. 

Here's what we see over the last six-months: 
 

JPM: Short 35/10 Delta Put Spread
 
% Wins: 100%
 
Wins: 2   Losses: 0
 
% Return:  36.4% 

Tap Here to See the Actual Back-test


Now we see a 36.4% return over the last two earnings cycles, winning both times. 

The results are incredibly consistent, so much so that we need to take a step back and still examine the potential pitfalls here. 

NO GUARANTEES 
There are no guarantees to this trade, but it does appear to a very high probability investment, but even as such, it does have some drawbacks. If we look at the trade six-months ago in this back-test, we actually tested this trade (January 2017): 
 

JPM_poste_custom_sps.png



That is, selling an 81.5/76.5 put spread @ $1.00. This trade, as constructed, had a maximum win amount of $1 (the credit received), but it had a maximum loss of $4, which is the difference in the strikes (81.5 - 76.5) minus the credit received ($1). That means the max gain: max loss ratio was 1:4. 

And yes, the trade worked out well, closing that February for $0.10. But, we do, at the very least, need to be aware of the trade we are examining. 

TAKING RISK OFF 
One clever way to get that max profit: max loss ratio back to something more manageable, is to put in a stop loss at the exact amount of credit we received. In Trade Machine, the way to test this is to put in a 100% stop loss, like this: 
 

setup_100limit.PNG



In English, if we took that same trade from January 2017, and put a stop loss in at $2 (which is a 100% loss relative to the $1 credit), then our max gain would have been $1 (the credit) and the max loss would have been $1 (the credit - stop). 

All of a sudden, we have a 1:1 max gain: max loss trade, and over the last year, which was four post earnings trades, the results are identical to the trade without a stop loss. Not too shabby. 

WHAT HAPPENED 
This is it. This is just one of the ways people profit from the option market -- optimize returns and reduce risk. To see how to do this for any stock and for any strategy, including covered calls, with just the click of a few buttons, 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. 

The author has no position in JPMorgan Chase & Co as of this writing. 

Back-test Link

 

 

 

 

 

 

 

 

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I've been very interested in this post-earnings put spread idea since it was posted a while ago.  So now that the margin calculation is fixed, I did a more extensive backtest.  I screened for the 100 most liquid stocks 3 years ago (to avoid any survivorship bias), and tested the same trade on all 100 of them over a 3 year period.  I sold a 50/20 delta put spread 2 days after earnings and closed 29 days after, using closest 30 DTE (in practice you get something between 30 and 60 DTE).  No profit target or stop loss.

 

The results are in the spreadsheet attached, which compares the strategy to buying and holding the same stocks (dividends were not accounted for.

 

The results are really good.  I'm tempted to believe there really is a persistent anomaly here, and it's not just a convenient uptrend magnified by options delta).

 

Bear in mind that the average returns at the bottom are 3 year total returns.  You'd have to calculate the CAGR to get an apples to apples comparison, and there are multiple ways to approach that, so I left it out.

 

CML Post Earnings put spread backtest.xlsm

Edited by Darcy MacDonald

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I was comparing the GOOG pre-earnings uptrend to TSLA and I think I found something weird with the TSLA data. I don't think it it pulling the correct earnings dates. I compared the GOOG earnings dates and how the trademachine enters/exits and everything looks good, however, the tesla data isn't correct. Please let me know if I am wrong or something else is happening....

link below:

http://tm.cmlviz.com/index.php?share_key=3hzYLGMHhq674CK6 

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Quote

 

 

 

 

 

 

 

 

An "Iron Butterfly", which consists of short ATM straddle and long 20 delta strangle, using all of the exact same parameters from this test, leads to much higher returns, but a 75 % win rate.

 

JPM = 1338% returns

WFC= 655% returns

Now this is almost funny

DE = 62,150% returns 75% wins

http://tm.cmlviz.com/index.php?share_key=pCivpDp8L4zdhRpt

 

Edited by cuegis

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3 hours ago, injoi9000 said:

I was comparing the GOOG pre-earnings uptrend to TSLA and I think I found something weird with the TSLA data. I don't think it it pulling the correct earnings dates. I compared the GOOG earnings dates and how the trademachine enters/exits and everything looks good, however, the tesla data isn't correct. Please let me know if I am wrong or something else is happening....

link below:

http://tm.cmlviz.com/index.php?share_key=3hzYLGMHhq674CK6 

 

Tesla reports their sales volume numbers every quarter in an 8-K, which is how every other company in the world releases their pro-forma earnings (earnings date release).  We use that date as their earnings dates, honoring their mode of operation with SEC filings. Having said that, we need to be really clear about that.  There are no other companies like Tesla that we are aware of.

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Trading Volatility: Option Trading Before Earnings in Starbucks Corporation

 

SBUX_building_2.jpg

 

Starbucks Corporation (NASDAQ:SBUX): Avoid Bear Market Risk: Option Trading Before Earnings

Date Published: 

Preface 
With the market's direction becoming tenuous, we can explore option trading opportunities in Starbucks Corporation (NASDAQ:SBUX) that do not rely on stock direction but do trade around earnings. 

It turns out, over the long-run, for stocks with certain tendencies like Starbucks Corporation, there is a clever way to trade market anxiety or market optimism before earnings announcements with options. 

This approach has returned 112% with a total holding period of just 84 days, or a annualized rate of 487%. Now that's worth looking into. 

Starbucks earnings are expected 7-27-2017, after the market closes. 

The Trade Before Earnings 
What a trader wants to do is to see the results of buying an at the money straddle a few days before earnings, and then sell that straddle just before earnings. Ideally we would see a high win-rate, a high return, and small losses when the trade goes wrong, and we get all of that when examining Starbucks. 

This trade is not a panacea, which is to say, we have to test it, stock by stock, to see when and why it worked. Let's start with Starbucks. 

Here is the setup: 

 

setup_6_0_earnings.png



We are testing opening the position 6 calendar days before earnings and then closing the position the day of earnings. Since Starbucks reports earnings after the market closes, this is not making any earnings bet. This is not making any stock direction bet. 

Once we apply that simple rule to our back-test, we run it on an at-the-money straddle: 

Returns 
If we did this long at-the-money (also called '50-delta') straddle in Starbucks Corporation (NASDAQ:SBUX) over the last three-years but only held it before earnings we get these results: 

 

SBUX
Long At-the-Money Straddle
 
% Wins: 83.3%
 
Wins: 10   Losses: 2
 
% Return:  112% 
 
% Annualized:  487% 

See this back-test in action


We see a 112% return, testing this over the last 12 earnings dates in Starbucks Corporation. That's a total of just 84 days (7 days for each earnings date, over 12 earnings dates). That's a annualized rate of 487%. 

We can also see that this strategy hasn't been a winner all the time, rather it has won 10 times and lost 2 times, for am 83% win-rate and again, that 112% return in less than two-full months of trading. 

Looking at Recent Results 
We can do this same test but look at the last year, rather than the last 3-years. Here are those results: 

 

SBUX
Long At-the-Money Straddle
 
% Wins: 83.3%
 
Wins: 4   Losses: 0
 
% Return:  62.1% 
 
% Annualized:  809% 

See this back-test in action


This pre-earnings long volatility trade has stare to find some momentum and has won each of the last four earnings cycles after going with 2 wins and 2 losses in the year prior (2-years ago). 

MORE TO IT THAN MEETS THE EYE 
While this strategy is benefiting from the implied volatility rise into earnings, what it's really doing is far more intelligent. 

The option prices for the at-the-money straddle will show very little time decay over this 7-day period, so what this strategy really does is buy "seven days" of potential stock movement with what is actually fairly small downside risk. 

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.

 

 

 

 

 

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Trading Earnings Optimism and Momentum With Options in NVIDIA Corporation

 

NVDA_logo_building5.jpg

 

NVIDIA Corporation (NASDAQ:NVDA) : Trading Earnings Optimism With Options

Date Published: 

PREFACE 
There is a powerful pattern of optimism and momentum in NVIDIA Corporation (NASDAQ:NVDA) stock right before of earnings, and we can capture that pattern by looking at returns in the option market. 

If ever there was a momentum stock, Nvidia fits the bill. It's historic rise has come on the back of legitimate fundamental growth, but for now, we want to focus on momentum, and there is a fascinating pattern that has emerged. 

The strategy won't work forever (it really won't), but in the last 3-years it has won 11 times and only lost once. Over the last two-years it has won 8 times and never lost. But, after we look at this trade, we have a wrinkle which has made it even better for those looking to take less risk. 

We see a projected date of 8-10-2017 for Nvidia earnings, but that date is not confirmed. You can stay up to date on this news by looking to Nvidia's investor relations site. 

PREMISE 
The premise is simple -- one of the least recognized but most important phenomena surrounding this bull market is the amount of optimism, or upward momentum, that sets in the week before an earnings announcement. Now we can see it in NVIDIA Corporation. 

The Options Optimism Trade Before Earnings in NVIDIA Corporation 
Let's look at the results of buying a monthly call option in NVIDIA Corporation 7-days before earnings and selling the call one day before the earnings announcement. 

Here's the set-up in great clarity; again, note that the trade closes before earnings, so this trade does not make a bet on the earnings result. 

 

setup_7_1_earnings.png



Now, unlike many of our other set-ups, this is in fact a straight down the middle bullish bet -- this absolutely takes on directional stock risk, so let's be conscious of that before we see the results, because they are mind bending. 

Here are the results over the last three-years in NVIDIA Corporation: 

 

NVDA: Long 50 Delta Call
 
% Wins: 91.7%
 
Wins: 11   Losses: 1
 
% Return:  286% 
 



We see a 286% return, testing this over the last 12 earnings dates in NVIDIA Corporation. We can also see that this strategy hasn't been a winner all the time, rather it has won 11 times and lost 1 time, for a 91.7% win-rate. 

Checking More Time Periods in NVIDIA Corporation 
Now we can look at just the last year as well: 

 

NVDA: Long 50 Delta Call
 
% Wins: 100%
 
Wins: 4   Losses: 0
 
% Return:  60.1% 
 

 



We're now looking at 60.1% returns, on 4 winning trades and 1 losing trade. It's worth noting again that we are only talking about one-weeks of trading for each earnings release, so this is 60.1% in just 4-weeks of total trading. 

MAKING IT BETTER 
Another approach here is to turn that naked long call into a call spread. The win-rates are identical, but the trade simply risks a little less. Here are the results over the last year for the 40/20 debit call spread: 

 

NVDA: Long 50 Delta Call
 
% Wins: 100%
 
Wins: 4   Losses: 0
 
% Return:  53.6% 
 

 



For the record, it also has 11 wins and 1 loss over the last 3-years (Back-test link), just like the naked long call. Also note that this is only "less risk" if size is the same by contract. 

So, owning 10 calls is more risky than owning 10 call spreads because there is less capital at risk. 

WHAT HAPPENED 
Bull markets have quirks, or personalities if you like. 

The personality of this bull market is one that shows optimism before earnings -- irrespective of the actual earnings result. That has been a tradable phenomenon in NVIDIA Corporation. 

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. The author is long shares of Nvidia at the time of this writing. 

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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19 hours ago, NikTam said:

@Ophir Gottlieb  Really appreciate all the work you've done on this.  Do you have a study on HD going into earnings?  Looks like a Call Spread is high probability -- and HD got hit hard with some news today about Amazon buying into the appliance market via Sears.  Thanks!

Looks good to me too (HD)

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I clicked on the link posted Thursday and it says $49.  Is the price still the $49 special or is that the price for the basic model without the custom spread capability?  Does this include upgrades?  

Thanks,

Jamie

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1 hour ago, Jamie said:

I clicked on the link posted Thursday and it says $49.  Is the price still the $49 special or is that the price for the basic model without the custom spread capability?  Does this include upgrades?  

Thanks,

Jamie

Hi Jamie,

 

The $49 version will always be available, but it is no longer the Pro version, which right simply means no custom strategies, but in the future will mean quite a bit (like scanning, IV ranks, technical indicators, etc). 

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The Volatility Option Trade After Earnings in Facebook Inc

 

risk_reward.jpg

 

Facebook Inc (NASDAQ:FB) : The Volatility Option Trade After Earnings

Date Published: 

LEDE 
This is a slightly advanced option trade that starts two calendar days after Facebook Inc (NASDAQ:FB) earnings and lasts for the 5 calendar days to follow, that has been a winner for the last 3 years. 

Facebook Inc (NASDAQ:FB) Earnings 
For Facebook Inc, irrespective of whether the earnings move was up or down, if we waited one-day after the stock move, 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 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_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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6 hours ago, Trdrs said:

Hi Ophir,

Thanks for sharing the FB after earnings strategy. I've reconstructed it myself (see: http://tm.cmlviz.com/index.php?share_key=ChZSV2EbIdMdliud). One question comes in mind. Why didn't you go for a 25/10 IC or the 30/10? It seems that these have a better total return and more winners. 

What are your thoughts? Or is my setup wrong?

Thanks

Tim

Since we are talking about 7 day options, 2 days AFTER the earnings IV collapse......I doubt there is any "meat left on the bone" for 25 delta options.

Just a guess.

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6 hours ago, Trdrs said:

Hi Ophir,

Thanks for sharing the FB after earnings strategy. I've reconstructed it myself (see: http://tm.cmlviz.com/index.php?share_key=ChZSV2EbIdMdliud). One question comes in mind. Why didn't you go for a 25/10 IC or the 30/10? It seems that these have a better total return and more winners. 

What are your thoughts? Or is my setup wrong?

Thanks

Tim

I changed a few things and came up with 100% wins over a 3 year period by going out 45 DTE, and changing the entry/exit dates.

The returns range from 150% - 260% depending on whether you do an iron butterfly or IC

http://tm.cmlviz.com/index.php?share_key=AJPAMYURnzNu3SYy

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8 hours ago, Trdrs said:

Hi Ophir,

Thanks for sharing the FB after earnings strategy. I've reconstructed it myself (see: http://tm.cmlviz.com/index.php?share_key=ChZSV2EbIdMdliud). One question comes in mind. Why didn't you go for a 25/10 IC or the 30/10? It seems that these have a better total return and more winners. 

What are your thoughts? Or is my setup wrong?

Thanks

Tim

 

 
45 day expiration executed one week after earnings 25/10 Delta IC has a 100% winning percentage and a whopping 396% return over the past three years.  It is also a little further out of the money making it a somewhat lower stress trade.  Considering we are just over 7 days after the FB earnings release I will be looking to put this trade on Monday.
 
Sell 25 Delta Call & Put, Buy 10 Delta Call & Put
Expiration: 45 Days
$1870 
Total Return:
 $7399 
% Return:
396%
Commissions:
  $171
% Wins:
100%
Wins: 12
Losses: 0
Gain: $7399
Loss: -

 

Edited by SBatch

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20 minutes ago, cuegis said:

It's amazing how so many other stocks have nearly opposite outcomes.

Here is AAPL, same with the other FANG names

http://tm.cmlviz.com/index.php?share_key=RCGG276fwt91NL0Q

 

What is it about FB?

FB seems to have a very defined pattern of sideways action for 60 days after the release and then a sharp move higher 20-30 days before the release.  The IC trade backtest confirms the sideways action and Ophir's previous post (pasted below) confirms the pre-earnings move higher.  This IC/Long Call dual strategy looks very interesting as a long term play.

 

 

Edited by SBatch

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11 minutes ago, SBatch said:

FB seems to have a very defined pattern of sideways action for 60 days after the release and then a sharp move higher 20-30 days before the release.  The IC trade backtest confirms the sideways action and Ophir's previous post (pasted below) confirms the pre-earnings move higher.  This IC/Long Call dual strategy looks very interesting as a long term play.

 

 

I correct myself about one other FANG stock.

I ran this exact same test, with all the same parameters as we did with FB< and used AMZN.

The results are far superior.

http://tm.cmlviz.com/index.php?share_key=4MwoUFF9Gw3fRrTw

 

OK. Not "Far" superior, but definitely better.

 

Edited by cuegis

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9 hours ago, Trdrs said:

Hi Ophir,

Thanks for sharing the FB after earnings strategy. I've reconstructed it myself (see: http://tm.cmlviz.com/index.php?share_key=ChZSV2EbIdMdliud). One question comes in mind. Why didn't you go for a 25/10 IC or the 30/10? It seems that these have a better total return and more winners. 

What are your thoughts? Or is my setup wrong?

Thanks

Tim

My goal is really to spur thought.  Basically your reaction and thoughtfulness is what I hope to create with the Trade Machine. Most use the "insights" as a guide, to tweak, optimize, adjust, and then apply. So, short answer, I do it so you can find the best results!

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10 hours ago, cuegis said:

I correct myself about one other FANG stock.

I ran this exact same test, with all the same parameters as we did with FB< and used AMZN.

The results are far superior.

http://tm.cmlviz.com/index.php?share_key=4MwoUFF9Gw3fRrTw

 

OK. Not "Far" superior, but definitely better.

 

@cuegisYou used slightly different parameters for AMZN - close 45 days after earnings, compared to 35 days with FB. Which basically means you held AMZN till expiration, but closed FB 10 days before expiration. I believe this would explain most of the difference. Change FB to 45 days - and you get similar results.

@SBatchYour test assumed holding till expiration as well, right? If you close 35 days after earnings (10 days before expiration), I think selling 30 delta produces better results.

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11 hours ago, Kim said:

@cuegisYou used slightly different parameters for AMZN - close 45 days after earnings, compared to 35 days with FB. Which basically means you held AMZN till expiration, but closed FB 10 days before expiration. I believe this would explain most of the difference. Change FB to 45 days - and you get similar results.

@SBatchYour test assumed holding till expiration as well, right? If you close 35 days after earnings (10 days before expiration), I think selling 30 delta produces better results.

This is my mistake.

I listed 45 days under "days to Expiration", but I thought I left 35 days in the "Custom Earnings" box, as it turns out I must have changed it from 35 to 45.

Edited by cuegis

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10 minutes ago, cuegis said:

This is my mistake.

I listed 45 days under "days to Expiration", but I thought I left 35 days in the "Custom Earnings" box, as it turns out I must have changed it from 35 to 45.

Now I'm really confused.

I forgot how I arrived at where AMZN turned out better results than FB.

I just went back through my initial steps and used the FB backtest that was posted here with 45 DTE, and opening 7 days after, closing 35 days after.

I thought that the only thing I did was run the same test on AMZN, and it produced far better numbers all around.

But, now I just tried doing the same exact thing again, and AMZN produces very poor, entirely different, results.

I screwed up up somewhere. Now I have to go back and figure out how!

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1 minute ago, cuegis said:

Now I'm really confused.

I forgot how I arrived at where AMZN turned out better results than FB.

I just went back through my initial steps and used the FB backtest that was posted here with 45 DTE, and opening 7 days after, closing 35 days after.

I thought that the only thing I did was run the same test on AMZN, and it produced far better numbers all around.

But, now I just tried doing the same exact thing again, and AMZN produces very poor, entirely different, results.

I screwed up up somewhere. Now I have to go back and figure out how!

AMZN produces very good results if you hold till expiration (close 45 days after earnings). But if you close early (which is always my preference), then the results are pretty poor.

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OK...you were correct. Somehow, I unknowingly changed the close out of the trade from 35 to 45, and ran the test going back 3 years.

It did produce superior results on both AMZN, and going back 3 years produced even better results on FB whether you use 35 or 45 days close out.

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2 minutes ago, cuegis said:

Well, if you split the difference, and use 40 days (to close position) rather than 35 or 45, it produces better results than 35 and you do not have to hold to expiration.

Yes, but still much worse than FB, and holding till 5 days to expiration is not something that I like to do.

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12 minutes ago, Kim said:

Yes, but still much worse than FB, and holding till 5 days to expiration is not something that I like to do.

I was just referring to FB in this case. But, I agree, I don't like holding anything until expiration. Unless it is a rare situation with a good reason for it.

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There is something about specifically holding IC's, in AMZN until expiration, that produces triple digit returns, more than 90% of the time, going back 3 years, no matter when you put the position on.

Here is a case of putting the IC on 14 days after earnings, and holding until expiration. (45 days)

http://tm.cmlviz.com/index.php?share_key=AuUGnGyFqVeybhba

This is the exact same backtest , on ly putting it on 21 days after earnings, and the results are even better.

http://tm.cmlviz.com/index.php?share_key=Dn7SehfvXBjpgqvq

If you REALLY do not want to hold until expiration, and 2-3 days would make any difference to you, you get almost as good, but still very good, results, if you close out 2-3 days before expiration...but no more than that.

A very strange characteristic of AMZN.

Here is an example of opening 14 days, closing 41 (out of 45) days.

http://tm.cmlviz.com/index.php?share_key=6wRysjVwNUM8BoEe

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The Volatility Option Trade After Earnings in NVIDIA Corporation

 
risk_balance.jpg
 

NVIDIA Corporation (NASDAQ:NVDA) : The Volatility Option Trade After Earnings

Date Published:

LEDE
This is a slightly advanced option trade that bets on volatility for a period that starts one-day after NVIDIA Corporation (NASDAQ:NVDA) earnings and lasts for the 6 calendar days to follow, that has been a winner for the last 2 years. We note the use of strict risk controls in this analysis.

Nvidia has earnings due out today (8-10-2017) after the close. One day after earnings would be 8-11-2017.

NVIDIA Corporation (NASDAQ:NVDA) Earnings
Trading the bullish momentum pattern ahead of earnings with a long call and closing yesterday (one-day before earnings) turned out to be a nice winner -- Nvidia stock followed its pattern. Now we look at another strategy that owns options, but this time takes no direction bias.

In NVIDIA Corporation, irrespective of whether the earnings move was large or small, if we waited one-day after earnings and then bought an one-week straddle (using weekly options), the results were quite strong. This trade opens one-day after earnings were announced to try to find a stock that moves a lot after the earnings announcement.

Simply owning options after earnings, blindly, is likely not a good trade, but hand-picking the times and the stocks to do it in can be useful. We can test this approach without bias with a custom option back-test. Here is the timing set-up around earnings:

 
setup_1_7_after_custom_e.PNG


Rules
* Open the long straddle one-calendar day after earnings.
* Close the straddle 7 calendar days after earnings.
* Use the options closest to 7 days from expiration (but at least 7-days).

This is a straight down the middle volatility bet -- this trade wins if the stock is volatile the week following earnings and it will stand to lose if the stock is not volatile. This is not a silver bullet -- it's a trade that needs to be carefully examined.

But, this is a stock direction neutral strategy, which is to say, it wins if the stock moves up or down -- it just has to move.

RISK CONTROL
Since blindly owning volatility can be a quick way to lose in the option market, we will apply a tight risk control to this analysis as well. We will add a 40% stop loss and a 40% limit gain.

 
setup_4040_limit.PNG


In English, at the close of every trading day, if the straddle is up 40% from the price at the start of the trade, it gets sold for a profit. If it is down 40%, it gets sold for a loss. This also has the benefit of taking profits if there is volatility early in the week rather than waiting to close 7-days later.

RESULTS
If we bought the straddle in NVIDIA Corporation (NASDAQ:NVDA) over the last two-years but only held it after earnings we get these results:

 
NVDA: Long Straddle
 
% Wins: 71%
 
Wins: 5   Losses: 2
 
% Return:  167.7% 

Tap Here to See the Back-test

We see a 167.7% return, testing this over the last 7 earnings dates in NVIDIA Corporation. That's a total of just 42 days (6 days for each earnings date, over 7 earnings dates). That's a annualized rate of 1,457%.

Looking at Averages
The overall return was 167.7%; but the trade statistics tell us more with average trade results:
      The average return per trade was 21.06% over 6-days.
      The average return per winning trade was 40.69% over 6-days.
      The average return per losing trade was -28.02% over 6-days.

Looking at the Last Year
While we just looked at a multi-year back-test, we can also hone in on the most recent year with the same test:

 
NVDA: Long Straddle
 
% Wins: 75%
 
Wins: 3   Losses: 1
 
% Return:  126% 

Tap Here to See the Back-test

Now we see a 126% return over the last year and a 75% win-rate.

      The average return for the last year per trade was 23.99% over 6-days.
      The average return for the last year per winning trade was 46.66% over 6-days.
      The average return per losing trade was -43.99% over 6-days.

An Alternative
For the the more advanced option trader, a similar approach to this strategy would be to sell a strangle around this straddle turning it into an iron butterfly. You can test this approach in the CML Trade Machine (option back-tester).

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

 

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@Ophir Gottlieb  I watched the presentation last night.  It was very interesting and a big crowd I think as asked several questions but didn't get answers.  My question today is do we have the ProScan version you were demonstrating last night?  My version simply says Scan (beta).  Thank you!

 

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Please Join us on Wednesday Sep 6, 2017 7:00 PM Eastern Time (ET) for CMLviz Trade Machine Webinarhosted by Ophir Gottlieb, CEO & Co-founder of Capital Market Laboratories (CML). 
 

Click Here to Register


We just closed FB Iron Condor trade for 30.1% gain. This trade was based on The Volatility Option Trade After Earnings in Facebook post. Thank you Ophir!

Would you like to find more trades like this one?
 

There's a lot less luck to successful option trading than many people realize. Discover the power of applying science to your options trading.The results are simply staggering. This is a hands on, open book look at trade discovery -- one in which attendees will leave with a massively improved view of option trading, trade discovery and success rates. Capital Market Laboratories will open up the learning engine behind the Trade Machine for the first time -- and it will remain open forever.

 

For a limited time, CMLviz Trade Machine is offered to SteadyOptions members at 30% discount.  
 

Click Here to Sign Up

 

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I was the first person to sign up for Trade Machine, many months ago, when they put out their first offer.

So, I have been a "Pro" member all along.

Today, as I was looking forward to seeing the scanner module, when I logged in...not only is it not there, but the "Pro" version has been reduced back to the basic, original program....the one without the ability to create 4 leg strategies.

Also, very unusual, there used to be a "scan" tab, in the middle, on top, and that has also been removed!

I feel like the opposite of a kid on Christmas morning!

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1 minute ago, cuegis said:

I was the first person to sign up for Trade Machine, many months ago, when they put out their first offer.

So, I have been a "Pro" member all along.

Today, as I was looking forward to seeing the scanner module, when I logged in...not only is it not there, but the "Pro" version has been reduced back to the basic, original program....the one without the ability to create 4 leg strategies.

Also, very unusual, there used to be a "scan" tab, in the middle, on top, and that has also been removed!

I feel like the opposite of a kid on Christmas morning!

The scan tab disappeared as well for me. No custom strategies either. I sent an email to their support email. I'm sure it's just a mistake with the launch and maybe they need to check that we kept the subscription before the cutoff date to be grandfathered.

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4 minutes ago, Djtux said:

The scan tab disappeared as well for me. No custom strategies either. I sent an email to their support email. I'm sure it's just a mistake with the launch and maybe they need to check that we kept the subscription before the cutoff date to be grandfathered.

I wrote to them twice today. I have been on "auto-payment", so I know they were always paid on time,same day, every month, since I began.

I agree, I'm sure it is probably just a glitch related to the rollout.

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9 minutes ago, cuegis said:

I was the first person to sign up for Trade Machine, many months ago, when they put out their first offer.

So, I have been a "Pro" member all along.

Today, as I was looking forward to seeing the scanner module, when I logged in...not only is it not there, but the "Pro" version has been reduced back to the basic, original program....the one without the ability to create 4 leg strategies.

Also, very unusual, there used to be a "scan" tab, in the middle, on top, and that has also been removed!

I feel like the opposite of a kid on Christmas morning!

Me too

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Seems they are aware of it :

"We have released the scanner but we do see the emails coming to us with many that do not have access but should. We are addressing this urgently and you should see the scanner shortly if you are a Pro member. "

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3 minutes ago, Djtux said:

Seems they are aware of it :

"We have released the scanner but we do see the emails coming to us with many that do not have access but should. We are addressing this urgently and you should see the scanner shortly if you are a Pro member. "

I just received the response from them.

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  • Similar Content

    • By Ophir Gottlieb
      How to Profit from Trading Options in Autodesk Inc Right After Earnings
       


      Date Published: 2017-05-18 
      Written by Ophir Gottlieb 

      LEDE 
      While Autodesk Inc (NASDAQ:ADSK) just crushed earnings again, sending shares soaring in the after hours trade, one option trade after earnings has been a consistent winner. It takes no earnings risk, little stock direction risk and over the last year has never lost while returning over 160% annualized returns. 

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      While most of the focus is on the actual earnings move for a stock, that's the distraction when it comes to the option market. For Autodesk Inc, irrespective of whether the earnings move was up or down, if we waited one-day after the stock move from earnings, and then sold an out of the money put spread, the results were very strong. 

      We can examine this, objectively, with a custom option back-test. Here is our earnings set-up: 
       


      Rules 
      * Open short put spread 1 day after earnings 
      * Close short put spread 29 days later 
      * Use the option that is closest to but greater than 30-days away from expiration 

      Here are the results over the last year: 
       


      That's a 47.3% return, with 4 winning trades and 0 losing trades. The total holding period was less than 4 full months, meaning the annualized return was over 160%. No earnings risk was taken -- this is not a coin flip over earnings. 

      The Logic 
      This strategy works beautifully in many companies where heavy stock volume follows the earnings release. The logic behind this trade follows a narrative that even after a bad earnings release, if we wait a day after, we find the stock at a point of equilibrium. 

      If it gapped down -- that gap is over. If it beat earnings, the downside move is already likely muted. Here's how this strategy has done over the last 6-months: 
       


      That's a 21.3% return, on 2 winning trades and 0 losing trades. Since this is a total of a two-month holding period, that 21.3% is actually over 120% annualized. 

      If you're curious, yes, this also produced positive returns over the last 3-years. Here are those results. 
       


      Now we can find some comfort in this approach where is shows 9 winning trades and just 2 losing trades over the last three-years. 

      WHAT HAPPENED 
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      To see how to do this for any stock and for any strategy with just the click of a few buttons, 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. 

      The author has no position in Autodesk Inc (NASDAQ:ADSK) as of this writing. 

      Back-test Link
       
       
       
       
       
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