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Kim

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6 minutes ago, cuegis said:

Well, it is a straight out directional trade, so of course you are working in a riskier arena.

But, these results, on a not so ideal, backtest, speaks for itself.

Yes. human intervention has to be involved, at some point, but I think there is something to this.

How did you arrive only at AAPL as something that has historical consistency to following a trend that follows the post earnings move?

Was it just by chance?

Or, do you have some other way of screening for this sort of thing?

There are many viable stocks that behave this way.

Now it is time to scan out a list of candidates.

 

 

Yep. Homework to be done. That's why we created the Trade Machine. If you work harder than the next guy, you will likely make more money.

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3 minutes ago, Ophir Gottlieb said:

Yep. Homework to be done. That's why we created the Trade Machine. If you work harder than the next guy, you will likely make more money.

Yes, working harder is important but, you have to know what it is you are looking for, and even more important...how do you setup the parameters to find it.

As far as finding candidates that , like AAPL, continue on in their post earnings direction, for a meaningful amount of time.....can this sort of thing be discovered using the tools available on Trade Machine?

If so, how about a hint?

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1 hour ago, cuegis said:

Well, it is a straight out directional trade, so of course you are working in a riskier arena.

But, these results, on a not so ideal, backtest, speaks for itself.

Yes. human intervention has to be involved, at some point, but I think there is something to this.

How did you arrive only at AAPL as something that has historical consistency to following a trend that follows the post earnings move?

Was it just by chance?

Or, do you have some other way of screening for this sort of thing?

There are many viable stocks that behave this way.

Now it is time to scan out a list of candidates.

 

 

You can find a list of momentum stocks almost anywhere. We are adding scanning, but that is a few months way.  It will also create two versions of the product. One for $49 and the other for $99. Until then, just watch for our news -- I look every day -- check the Discover Tab.

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1 hour ago, cuegis said:

can this sort of thing be discovered using the tools available on Trade Machine?

You can do this (and a lot more) on portfolio123.com.  They have an extremely sophisticated stock screener and portfolio-level backtester.

I've had some luck taking my more profitable models from p123 and then backtesting a few different directional options strategies on the trade machine.  

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The Wonderful Secret Behind Options Earnings Trading in Twitter Inc (NYSE:TWTR)

 

volatility_2.jpg 
Discovering Volatility in Twitter Inc

 

Twitter Inc (NYSE:TWTR) : The Wonderful Secret Behind Options Earnings Trading

Date Published: 

PREFACE 
There is a wonderful secret to trading options right before earnings announcements in Twitter Inc (NYSE:TWTR) , and really many stocks, that benefits from the rising implied volatility but avoids the risk into the actual earnings release and also avoids any kind of stock direction risk. 

This approach has returned 19.5% with a total holding period of just 60 days, or a annualized rate of 119%. Now that's worth looking into and remembering for the next earnings release in a few months. 

STORY 
Everyone knows that the day of an earnings announcement is a risky event for a stock. This can be explicitly seen in the option market, where the implied volatility (the expected stock move) rises into the earnings event. 

Here is a great illustration of that reality using Google, just as as simple example, and a chart of its 30-day implied volatility over the last two-years, before we turn to Twitter Inc . While the implied volatility ebbs and flows, it generally rises into earnings, which are denoted in the chart below with the "E" icon. We circled the rise in yellow for convenience. 

 

GOOGLvol_417.PNG



The question every option trader, whether professional or amateur, has long asked is if there is a way to profit from this known volatility rise. It turns out, that over the long-run, for stocks with certain tendencies, the answer is actually, yes. 

THE WONDERFUL SECRET 
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. The goal, is two-fold: (i) to be to benefit from that known implied volatility rise, and (ii) to own the straddle for a very short period of time when the stock might move 'a lot.' 

If either of those two phenomena occur, there's a very good chance this wins, if neither occur, the amount risked is normally quite small. Here is the setup: 

 

setup_6_1_earnings.PNG



We are testing opening the position 6 days before earnings and then closing the position 1 day before earnings. 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 Twitter Inc (NYSE:TWTR) over the last three-years but only held it before earnings we get these results: 

 

Long At-the-Money Straddle
* Monthly Options
* Back-test length: three-years
* Open 6-days Before Earnings
* Close 1-day Before Earnings
* Holding Period: 5-Days per Earnings
 
Winning Trades: 5
Losing Trades: 7
Pre-Earnings Straddle Return:  19.5
Annualized Return:  119


We see a 19.5% return, testing this over the last 12 earnings dates in Twitter Inc. That's a total of just 60 days (5 days for each earnings date, over 12 earnings dates). That's a annualized rate of 119%. 

We can also see that this strategy hasn't been a winner all the time, rather it has won 5 times and lost 7 times, for a 42% win-rate and again, that 19.5% return in less than two-full months of trading. 

WHAT HAPPENED 
This is it -- this is how people profit from the option market -- it's preparation, not luck. 

We hope, if nothing else, you have learned about Twitter Inc (NYSE:TWTR) and the wonderful secret of option trading and volatility ahead of earnings. 

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 Twitter Inc stock as of this writing. 

Back-test Link (requires custom earnings set-up).

 

 

 

 

 

Edited by Ophir Gottlieb

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TWTR backtest is interesting...no way to really identify a "good price" before hand like we do with our SO straddles based on the 3 year look back in the test above.  Prices are all over with some of the most expensive as a % of the underlying price being the best performers 

Edited by RapperT

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The point is exactly that. In a small period of time, where IV is determined to be "normal," there is an opportunity ahead of earnings to take that IV, and realize three things:

 

(1) The vol rise will likely offset a little bit of the decay, so a 5-day holding period of a monthly straddle with earnings in it can sustain its value "pretty well" if the stock doesn't budge. That limits the downside in those 5-days.

 

(2) If the stock does vacillate before earnings, the upside to that long straddle is outsized compared to that limited downside. 

 

(3) We have anecdotal evidence of this by seeing a trade that lost more often than it won, but yielded really strong returns, anyway. That means the wins were much larger than the losses, which is exactly the thesis behind this trade. 

This goes much further than a vol bet through calendars, and gets at the guts of successful option trading -- if you can make bets that are very cheap (with respect to downside risk) but have a non trivial potential of a sizable upside, you will growth wealth.

 

This is very different than buying a $0.05 call option and saying, "hey, the most I can lose is $0.05." Er, no, the most you can lose is 100%, and likely will. 

 

A portfolio of these straddles that have proven to be successful over time will likely create a serious opportunity for wealth creation on a sound theoretical basis.

 

Edited by Ophir Gottlieb

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It wasn't a criticism at all.  This will speed up everything for me compared to using ONE.

You can see the difference between underlyings we've played like INTC and MSFT versus TWTR.  If i were to trade TWTR earnings straddles, they would have to be purely systematic.

Edited by RapperT

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Just now, RapperT said:

It wasn't a criticism at all.  This will speed up everything for me compared to using ONE.

You can see the difference between underlyings we've played like INTC and MSFT versus TWTR.  If i were to trade TWTR earnings, it would have to be purely systematic.

For sure (didn't take it as a criticism, btw. V happy to see you using it.). 

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was the majority of the profits the result of 

1- A rise in IV? I would think not, since the vega rise is probably neutralized by the theta loss.

2- Being able to have free, or low cost , gamma for 5 days, and it came from a large price move during that time.

Is it a "Vega", or "Gamma" profit?

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7 minutes ago, cuegis said:

was the majority of the profits the result of 

1- A rise in IV? I would think not, since the vega rise is probably neutralized by the theta loss.

2- Being able to have free, or low cost , gamma for 5 days, and it came from a large price move during that time.

Is it a "Vega", or "Gamma" profit?

Gamma

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The Secret to Options Trading in Apple Before Earnings

There is a wonderful secret to trading options right before earnings announcements in Apple Inc (NASDAQ:AAPL), and really many stocks, that benefits from the rising implied volatility but avoids the risk into the actual earnings release and also avoids any kind of stock direction risk. 
 

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Some of these AFTER earnings drift trades are interesting.

I am almost hitting 1000% returns with TSLA up 49% over 3 years. And similar with all the other time frames.

I am buying 1 day after earnings, selling 30 days after earnings.

I am buying the 50/20 or 40/20 , or similar, call verticals.

Then, after seeing triple digit returns always, and 900++% in 3 years, I checked all of my inputs to see if maybe I did something unintentional.

The only thing I could find was that I used a 10 day rollover, when I would normally use 30.

Even morke remarkable, is that BOTH legs of many of the verticals were closed for a profit, which is getting into "impossible" territory!

And the % of winners is almost always less than 50%.

 

http://tm.cmlviz.com/index.php?share_key=GLhueRQNTmlo8nY6

 

 

 

 

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1 minute ago, cuegis said:

Some of these AFTER earnings drift trades are interesting.

I am almost hitting 1000% returns with TSLA up 49% over 3 years. And similar with all the other time frames.

I am buying 1 day after earnings, selling 30 days after earnings.

I am buying the 50/20 or 40/20 , or similar, call verticals.

Then, after seeing triple digit returns always, and 900++% in 3 years, I checked all of my inputs to see if maybe I did something unintentional.

The only thing I could find was that I used a 10 day rollover, when I would normally use 30.

Even morke remarkable, is that BOTH legs of many of the verticals were closed for a profit, which is getting into "impossible" territory!

And the % of winners is almost always less than 50%.

 

http://tm.cmlviz.com/index.php?share_key=GLhueRQNTmlo8nY6

 

 

 

 

 

In my opinion, a proper use of the back-tester and custom strategies can be a great wealth creating implementation for options and as far as I know is only available with Trade Machine. Why everyone wouldn't pay the promo $49 just to have in your back pocket is truly a mystery to me. 

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21 hours ago, cuegis said:

Yes, working harder is important but, you have to know what it is you are looking for, and even more important...how do you setup the parameters to find it.

As far as finding candidates that , like AAPL, continue on in their post earnings direction, for a meaningful amount of time.....can this sort of thing be discovered using the tools available on Trade Machine?

If so, how about a hint?

http://stocksearning.com/ (same link I shared with you before) will show where the underlying historically trades 7 days after earnings.  There are definitive trends with certain underlying equities.  The shorter time frame would require a more aggressive strategy than you use with TSLA, but of course the potential gains are realized much more rapidly.

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"The more one sided the outside world starts betting on direction -- up or down, the better it is to own the straddle. "

 

 

This is a tricky statement.

Yes. We are buying 5-6 days of heavy duty Gamma (if we use the 1st post earnings ATM straddle).

But, once we have the use of this Gamma, there are 2 ways that money can be made.

1- if the stock is very volatile and has a 2 directional, back and forth, period of movement where you can "actively" re-hedge " your deltas.

You may even find that you actually lose some money on the base position ( straddle), but make many times more than that through the "rehedges".

2- Or, if you get an extended one directional move, and you don't rehedge, and just let it run it's course.

Both of these cases can make a LOT of money but, you are entering, to some degree, the arena of directional trading, because you have to have a strict set of guidelines as to when you are going to re hedge your deltas.

In scenario #1, if the stock is up $10 one day, and down $8 the next, etc...with alot of back and forth movement, if you don't re hedge your constantly changing deltas, then you are throwing out the use of the gamma that you paid for.

But, if scenario #2 ends up happening, and after the 1st 3% move,  you hedge away all of your deltas, and the stock just continues on , in the same direction, for the 5 days period...then you would have given away most of your gamma after the first day or 2 and will not benefit from the continuing , one-directional, move after that point.

So, as is always the case with "positive gamma trading", the ONLY question is...."when do I rehedge my deltas?"

And there are SO many possible ways of dealing with this.

It is all based upon an "unknown"...are we going to have an extended 1 directional move or, are we going to have a volatile back and forth period.

Either case is just as likely during the pre earnings period.

 

Edited by cuegis

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4 minutes ago, SBatch said:

http://stocksearning.com/ (same link I shared with you before) will show where the underlying historically trades 7 days after earnings.  There are definitive trends with certain underlying equities.  The shorter time frame would require a more aggressive strategy than you use with TSLA, but of course the potential gains are realized much more rapidly.

Does it also show where the stock is at other times post earnings? (ex. 14 days, 30 days).

I think I might have hit on something by accident when I used the 10 day rollover instead of 30.

It forces the backtest to trade more actively.

Oh, also...I use "immediately" as when to re enter.

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So, are we going to look at where AAPL ends up at the end of tomorrow , and then take either a neutral position (straddle)...or directional (ex. a vertical in the direction of the initial move?

 

We would buy something 30 days out, after the IV collapse, and hold for 30 days.

You would get the full IV collapse if you wait until the end of the day.

Edited by cuegis

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Just now, cuegis said:

So, are we going to look at where AAPL ends up at the end of tomorrow , and then take either a neutral position (straddle)...or directional (ex. a vertical in the direction of the initial move?

This is how they recommend using the 7th day predicted move:

 

Predicted Move (Volatility) - 7th Days

Expected volatility on 7th day since Earnings results.

Why is it Important?

Higher Upside reaction on 7th day

  • If historical price change on 7th day is higher than price change on next day, stock tends to gain more from Earnings result. It supports Buy In Post-Earnings strategy.

Lower Upside reaction on 7th day

  • If historical price change on 7th day is less than price change on next day, stock tends to give up from next price gain. It supports Sell In News strategy.

Further Downside reaction on 7th day

  • If historical price change on 7th day is less than next day drop, stock tends to drop even more from Earnings result.

Less Downside reaction on 7th day

  • If historical price change on 7th day is less than next day drop, stock tends to recover from next price drop. It supports Buy In Dip strategy.

 

 

 

 

 

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9 minutes ago, cuegis said:

So, are we going to look at where AAPL ends up at the end of tomorrow , and then take either a neutral position (straddle)...or directional (ex. a vertical in the direction of the initial move?

Ignore my AAPL comment, momentarily thought they already reported.

Edited by SBatch

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11 minutes ago, cuegis said:

So, are we going to look at where AAPL ends up at the end of tomorrow , and then take either a neutral position (straddle)...or directional (ex. a vertical in the direction of the initial move?

 

We would buy something 30 days out, after the IV collapse, and hold for 30 days.

You would get the full IV collapse if you wait until the end of the day.

I don't think taking a neutral position would work well long term (but we can find out via the TradeMachine!).  I personally would only initiate a directional position.

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4 minutes ago, SBatch said:

Regarding the Apple question, it is too late to utilize their data to formulate a strategy.

 

Why? Dosn't the whole thing hinge on which direction the stock takes after the first full day of trading?

As I'm sure you have seen many times, immediately after earnings release, the stock has a dramatic move in one direction for about 5-10 minutes.

 

Then it quickly reverses and takes off in the opposite direction, which typically is the direction it continues on.

All of that will be happening between AC today, and the end of day tomorrow.

 

But the other set of rules you laid out does make a lot of sense as well.

That would require waiting 7 days before you make any determination.

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Just now, cuegis said:

Why? Dosn't the whole thing hinge on which direction the stock takes after the first full day of trading?

As I'm sure you have seen many times, immediately after earnings release, the stock has a dramatic move in one direction for about 5-10 minutes.

 

Then it quickly reverses and takes off in the opposite direction, which typically is the direction it continues on.

All of that will be happening between AC today, and the end of day tomorrow.

 

But the other set of rules you laid out does make a lot of sense as well.

That would require waiting 7 days before you make any determination.

See my edit above.

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6 minutes ago, SBatch said:

I don't think taking a neutral position would work well long term (but we can find out via the TradeMachine!).  I personally would only initiate a directional position.

Thats what I was trying to tell Ophir.

If his basic premise is that , in the case of AAPL, the stock will tell you what direction it has chosen to take for the next 30 +/- days.

His backtest used a straddle and I didn't understand why!

The whole point of this is directional.

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Just now, cuegis said:

Thats what I was trying to tell Ophir.

If his basic premise is that , in the case of AAPL, the stock will tell you what direction it has chosen to take for the next 30 +/- days.

His backtest used a straddle and I didn't understand why!

The whole point of this is directional.

I think so as well.  I'm not interested in bleeding theta after a stock has made its large post earnings move.

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1 hour ago, cuegis said:

Some of these AFTER earnings drift trades are interesting.

I am almost hitting 1000% returns with TSLA up 49% over 3 years. And similar with all the other time frames.

I am buying 1 day after earnings, selling 30 days after earnings.

I am buying the 50/20 or 40/20 , or similar, call verticals.

Then, after seeing triple digit returns always, and 900++% in 3 years, I checked all of my inputs to see if maybe I did something unintentional.

The only thing I could find was that I used a 10 day rollover, when I would normally use 30.

Even morke remarkable, is that BOTH legs of many of the verticals were closed for a profit, which is getting into "impossible" territory!

And the % of winners is almost always less than 50%.

Interesting thing to stumble upon.  Essentially, you are buying WEEKLY verticals, doing that every week ONLY during the first 30 days after earnings.  Then, you essentially take the next two months off until earnings hits again, then you start up again the day after earnings, but only for a month again.

 

I think it's important to study the individual trades in the trade log section.  Having just purchased a subscription yesterday, it only took me my first simulation to find a couple potential bugs, which greatly affected the results.

 

In this case of TSLA, it's interesting to see the individual trade results, and how each month after earnings did.  Here's a quick rundown of some of the 30-day periods, based on 1-lot, 40d-20d verticals:

2/10/16  $1619 (all 5 winning trades)

5/4/16 $-147 (1 winner, 1 scratch, 3 losers)

8/3/16 $-479 (all 5 losing trades)

10/26/16  $-137 (4 losing, 1 winner)

And here's where it gets interesting...

Next position opened is March 3rd.  But earnings was on 2/22.  So it entered a trade this time 7 days after earnings, not 1.  Looks like potential bug #1, or wrong earnings date data.

Then, instead of stopping the weekly trades after a month (~5 trades like in other cycles), it just kept going and going until today, 9 trades later.  This would appear to be bug #2.

The first 5 trades netted $827 (3 win, 2 losers), and the next 4 trades netted $-30.

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1 hour ago, ChadK said:

Interesting thing to stumble upon.  Essentially, you are buying WEEKLY verticals, doing that every week ONLY during the first 30 days after earnings.  Then, you essentially take the next two months off until earnings hits again, then you start up again the day after earnings, but only for a month again.

 

I think it's important to study the individual trades in the trade log section.  Having just purchased a subscription yesterday, it only took me my first simulation to find a couple potential bugs, which greatly affected the results.

 

In this case of TSLA, it's interesting to see the individual trade results, and how each month after earnings did.  Here's a quick rundown of some of the 30-day periods, based on 1-lot, 40d-20d verticals:

2/10/16  $1619 (all 5 winning trades)

5/4/16 $-147 (1 winner, 1 scratch, 3 losers)

8/3/16 $-479 (all 5 losing trades)

10/26/16  $-137 (4 losing, 1 winner)

And here's where it gets interesting...

Next position opened is March 3rd.  But earnings was on 2/22.  So it entered a trade this time 7 days after earnings, not 1.  Looks like potential bug #1, or wrong earnings date data.

Then, instead of stopping the weekly trades after a month (~5 trades like in other cycles), it just kept going and going until today, 9 trades later.  This would appear to be bug #2.

The first 5 trades netted $827 (3 win, 2 losers), and the next 4 trades netted $-30.

Are you using the 10 day "Rollover?"

I'm trying to see if I get the same "bugs" that you are .

But, I'm not getting some, but I'm getting others., 

For example TSLA, Buy 1 day after, Sell 30 days after.

50/20 (Delta call vertical),

Rollover - 10 Days.

So, first I look back 6 months.

Everything is 250% + profit.

Also the % winners is higher ( 50% - 85%).

But, the thing that sticks out as a possible bug is that the 1st trade is March 3/ close out Mar 17.

Next trade opens Mar 17/ close out Mar 24 (it just reopens with a new 50/20 vertical.

What is weird is that it is automatically opening and closing , every 7 days, and through May 2, which is 60 days.

How does it continue to trade every 7 days, and continue on for 60 days, when I set it up to buy 1 day AE, and close out 30 days AE?

I think this issue is coming from using 10 days as the rollover.

I think I actually "confused" the program, because some of those inputs conflict with one another.

In any case, it is an extremely profitable back test, with returns ranging from 250% - 975% (no losses ever) in all lookback periods (6 months,1,2,3 years).

I'm hoping that I stumbled onto something here. 

But, I think that the 10 day rollover might be a winning accident. I intended to use 30 day rollover but, when I saw the ridiculous results, and went back to check every input.

That is when I noticed the 10 day rollover.

Now , I'm going to keep everything exactly the same and run through a whole bunch more stocks to see if there is any consistency.

But, to be fair, remember, we have been in a 5 + year runaway bull market all around.

Part of the "edge" I think is that we are buying IV right AFTER it has been crushed.

Then, after that, because it is a vertical, IV is a lot less important because the short leg offsets about 70% of the total IV of the trade.

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I tried FB and it makes the trade every 7 days also, only it begins Nov 3 and continues trading every 7 days until March 6 (4 months vs 2 months with TSLA). Also a big winner but not nearly as much as TSLA

Edited by cuegis

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25 minutes ago, cuegis said:

I tried FB and it makes the trade every 7 days also, only it begins Nov 3 and continues trading every 7 days until March 6 (4 months vs 2 months with TSLA). Also a big winner but not nearly as much as TSLA

 

i really urge you to use standard expiration times, like 7, 30, 60, etc. When it's ambiguous, the back-tester will pick up some odd expirations -- it's correct, but it will not necessarily be repeatable in real-life.

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20 minutes ago, Ophir Gottlieb said:

 

i really urge you to use standard expiration times, like 7, 30, 60, etc. When it's ambiguous, the back-tester will pick up some odd expirations -- it's correct, but it will not necessarily be repeatable in real-life.

Are you talking about the number for the "Rollover" period?

For that input, don't use a number like 10?

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4 minutes ago, cuegis said:

Are you talking about the number for the "Rollover" period?

For that input, don't use a number like 10?

 

Exactly. Try to use numbers where the back-tester doesn't have to search for an expo, bc that can lead to weird times where you run a back-test one day, then get different results with a different start date bc one expiration may be closer than another. The calcs are right, but we are after robustness, and in that vein, let's turn the machine onto what we know can be repeated.

Edited by Ophir Gottlieb

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1 hour ago, cuegis said:

Are you using the 10 day "Rollover?"

I'm trying to see if I get the same "bugs" that you are .

But, I'm not getting some, but I'm getting others., 

For example TSLA, Buy 1 day after, Sell 30 days after.

50/20 (Delta call vertical),

Rollover - 10 Days.

So, first I look back 6 months.

Everything is 250% + profit.

Also the % winners is higher ( 50% - 85%).

But, the thing that sticks out as a possible bug is that the 1st trade is March 3/ close out Mar 17.

Next trade opens Mar 17/ close out Mar 24 (it just reopens with a new 50/20 vertical.

What is weird is that it is automatically opening and closing , every 7 days, and through May 2, which is 60 days.

How does it continue to trade every 7 days, and continue on for 60 days, when I set it up to buy 1 day AE, and close out 30 days AE?

I think this issue is coming from using 10 days as the rollover.

 

Yes, I am using all of these settings, other than the profits I listed were for a 40/20d spread (which had the highest PnL%.

So, to my understanding, the "rollover 10 days" means to open a trade that is 10 days to expiration.  If one is not available at exactly 10 days to expiration, pick an expiration cycle that is closest to 10.  In this case, there are weekly options, and it's picking a 7 DTE instead of a 14 DTE.  Once that trade is opened, it then expires after ~7 days, and then a new trade is opened immediately.  It looks for an expiration with 10 days, doesn't find one, picks 7 again, and the cycle starts all over.

 

Then, when it's 30 days after expiration, it says you don't want to trade anymore, so it closes the last trade before it expires.  It then waits until 1 day after earnings ("sitting on the sidelines" for 2 months), then starts all over again.

 

This is why I say it's informative to look at the individual trades to see if they make sense.  Of course, if you stumble across some interesting trade by not doing what you intended, that's great, as long as the individual results look meaningful.

 

2 hours ago, ChadK said:

Next position opened is March 3rd.  But earnings was on 2/22.  So it entered a trade this time 7 days after earnings, not 1.  Looks like potential bug #1, or wrong earnings date data.

Then, instead of stopping the weekly trades after a month (~5 trades like in other cycles), it just kept going and going until today, 9 trades later.  This would appear to be bug #2.

 

@Ophir Gottlieb Did you see these comments of mine?

 

Edited by ChadK
clarification

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1 minute ago, ChadK said:

 

Yes, I am using all of these settings, other than the profits I listed were for a 40/20d spread (which had the highest PnL%.

So, to my understanding, the "rollover 10 days" means to open a trade that is 10 days to expiration.  If one is not available at exactly 10 days to expiration, pick an expiration cycle that is closest to 10.  In this case, there are weekly options, and it's picking a 7 DTE instead of a 14 DTE.  Once that trade is opened, it then expires after ~7 days, and then a new trade is opened immediately.  It looks for an expiration with 10 days, doesn't find one, picks 7 again, and the cycle starts all over.

 

Then, when it's 30 days after expiration, it says you don't want to trade anymore, so it closes the last trade before expiration.  It then waits until 1 day after expiration ("sitting on the sidelines" for 2 months), then starts all over again.

 

This is why I say it's informative to look at the individual trades to see if they make sense.  Of course, if you stumble across some interesting trade by not doing what you intended, that's great, as long as the individual results look meaningful.

 

@Ophir Gottlieb Did you see these comments of mine?

 

Yep. Been looking.

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Just signed up. Very cool and fast backtesting! 

 

In about 3 minutes I was able to test out our VXX trade (sort of). Would love to see diagonals supported. For now this gives a pretty good idea. 

 

http://tm.cmlviz.com/index.php?share_key=3ZPHymSmEWHXzAh6

 

Would love to see how this tests out if you can eliminate trades when VX futures are in backwardation or when the put skew is flat. I know - but a guy can dream right?

 

Edited by eudaimonia

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20 hours ago, cuegis said:

Thats what I was trying to tell Ophir.

If his basic premise is that , in the case of AAPL, the stock will tell you what direction it has chosen to take for the next 30 +/- days.

His backtest used a straddle and I didn't understand why!

The whole point of this is directional.

I bought a bullish diagonal on AAPL - short the June 150 calls and long the Sept 135 calls for 12.15. 

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51 minutes ago, cuegis said:

Why did you go so far out in time?

A couple reasons.  I chose the June short strike as it gives me a very solid premium in comparison to the May.  Also, I see APPL grinding up from here and not making a strong upward move so it gives the spread time to reach full profit during the next 45 days.  If I am correct and we are in the $150 area near June expiration (or a bit earlier), the long leg Sept expiration allows me to roll the June short leg to July for an additional premium if the setup is still favorable.  This new spread short leg will expire before AAPL reports again so I will close the entire spread near or at  July expiration.  Choosing September over August for the long leg also reduces some of the theta drag as we got near July expiration.

Edited by SBatch

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18 minutes ago, SBatch said:

A couple reasons.  I chose the June short strike as it gives me a very solid premium in comparison to the May.  Also, I see APPL grinding up from here and not making a strong upward move so it gives the spread time to reach full profit during the next 45 days.  If I am correct and we are in the $150 area near June expiration (or a bit earlier), the long leg Sept expiration allows me to roll the June short leg to July for an additional premium if the setup is still favorable.  This new spread short leg will expire before AAPL reports again so I will close the entire spread near or at  July expiration.  Choosing September over August for the long leg also reduces some of the theta drag as we got near July expiration.

It makes a lot of sense except I think that, way the stock moves, it could blow right through the short strike before the week is over. Certainly way before June expiration.

$3 is nothing to AAPL.

But, you would be VERY lucky if that happened as you would collect the full June premium now, But , the delta on the Sept 135 is only .78 and you would be short 100 shares (100 deltas) vs your long 78 deltas until you can buy back the short stock and sell some higher strike.

It probably could be done pretty quickly though.

I was thinking of following the exact trades that came out of the backtest..or close to it.

Long 50/ short 20 delta verticals that expire in 2-3 weeks.

If the stock just has a slow grind up, the theta actually works to your advantage. Alot of those trades made money on BOTH legs, which is quite unusual, but is what would happen with a 2-3 week spread and a slow grind up.

 

My trade needs to be more actively traded though

Edited by cuegis

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32 minutes ago, cuegis said:

It makes a lot of sense except I think that, way the stock moves, it could blow right through the short strike before the week is over. Certainly way before June expiration.

$3 is nothing to AAPL.

But, you would be VERY lucky if that happened as you would collect the full June premium now, But , the delta on the Sept 135 is only .78 and you would be short 100 shares (100 deltas) vs your long 78 deltas until you can buy back the short stock and sell some higher strike.

It probably could be done pretty quickly though.

I was thinking of following the exact trades that came out of the backtest..or close to it.

Long 50/ short 20 delta verticals that expire in 2-3 weeks.

If the stock just has a slow grind up, the theta actually works to your advantage. Alot of those trades made money on BOTH legs, which is quite unusual, but is what would happen with a 2-3 week spread and a slow grind up.

 

My trade needs to be more actively traded though

Yes, $3 is nothing to AAPL in both directions.  Let's keep in mind AAPL is up about 60% in the last 12 months and we are heading into seasonal weakness for equities in general.  The thesis is that AAPL will grind higher, meaning gyrate in both directions for the next month or so and end around $150 which would be a 2% gain for the underlying between now and then.  A very reasonable scenario for a stock in a grinding uptrend.

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This Option Trade After Facebook Earnings Has Won For 3 Years in a Row
 
 
FB_logo_building.jpg


Date Published:  
Written by Ophir Gottlieb 

LEDE 
This is a simple option trade that starts the day after Facebook Inc (NASDAQ:FB) earnings and lasts for one month that has won for three straight years without a loss. 

FACEBOOK EARNINGS 
While it's fun to focus on the actual earnings move for a stock, that's the distraction when it comes to options. For Facebook Inc, irrespective of whether the earnings move was up or down, if we waited on day after the stock move, and then sold an out of the money put spread, the results were simply staggering. 

We can examine this, objectively, with a custom back-test. Here is our custom earnings set-up: 
 
setup_1_29_after_custom_e.PNG


Rules 
* Open short put spread one day after earnings 
* Close short put spread 29 days later 
* Use the 30-day option 

Here are the results over the last three-years: 
 
FBsps_custom_e_af_3yrs.PNG


That's a 104% return, with 11 winning trades and 0 losing trades. The total holding period was 11 months. No earnings risk was taken -- this is not a coin flip over earnings. 

Here's how it did over the last two-years. 
 
FBsps_custom_e_af_2yrs.PNG


That's a 54.6% return, on 7 winning trades and 0 losing trades. Since this is a total of a seven-month holding period, that 54.6% is actually 93.6% annualized. 

Finally, we examine the last year: 
 
FBsps_custom_e_af_1yrs.PNG


We see a 34.4% return, on 3 winning trades and 0 losing trades. Since this is just a total of a three-month holding period, that is a 137.6% annualized return. In other words, the trade has continued to work, and the returns are not getting weaker. 

WHAT HAPPENED 
As great as this trade looks, it is not a panacea. This is not a sure thing -- no trade will "always win."

But, there are patterns to stock behaviors before and after earnings and those patterns reveal opportunities in the option market, without taking the actual risk of earnings. You can find them, stock by stock, like Apple and Google before earnings. 

This is how people profit from the option market -- it's preparation, not luck. 

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 Facebook Inc (NASDAQ:FB) as of this writing. 

Back-test Link (does require custom earnings settings).

 

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@Ophir Gottlieb - here is another one that breaks apart expectations. Holding long straddles through XOM earnings is quite profitable: http://tm.cmlviz.com/index.php?share_key=5xGEIh1AsTOyoATw

 

What I thought was interesting is that even though XOM is down 11% over the past 3 years earnings are essentially neutral as seen in the backtest.

Edited by eudaimonia

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9 minutes ago, eudaimonia said:

@Ophir Gottlieb - here is another one that breaks apart expectations. Holding long straddles through XOM earnings is quite profitable: http://tm.cmlviz.com/index.php?share_key=5xGEIh1AsTOyoATw

 

What I thought was interesting is that even though XOM is down 11% over the past 3 years earnings are essentially neutral as seen in the backtest.

Great find. I am also finding some great trades with this new feature. Kind of feel bad for the rest of the world that doesn't have it, tbh. 

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The Intelligence Behind Options Earnings Trading in The Coca-Cola Company (NYSE:KO)

 

intelligence_1.jpg

 

The Coca-Cola Company (NYSE:KO) : The Intelligence Behind Options Earnings Trading

Date Published: 

LEDE 
This is a simple options trade that starts the day after The Coca-Cola Company (NYSE:KO) earnings and lasts for the one month to follow, that has been a winner for 3 straight years. 

The Coca-Cola Company (NYSE:KO) Earnings 
While the mainstream media likes to focus on the actual earnings move for a stock, that's the distraction when it comes to the option market. 

For The Coca-Cola Company, irrespective of whether the earnings move was up or down, if we waited one day after the stock move, and then sold an one-month out of the money put spread, the results were simply staggering. 

STORY 
Everyone knows that the day of an earnings announcement is a risky event for a stock. This can be explicitly seen in the option market, where the implied volatility (the expected stock move) rises into the earnings event. 

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

 

setup_1_29_after_custom_e.PNG



Rules 
* Open short put spread one day after earnings 
* Close short put spread 29 days later 
* Use the 30-day options 

RETURNS 
If we sold this out-of-the-money put spread in The Coca-Cola Company (NYSE:KO) over the last three-years but only held it after earnings we get these results: 

 

Short Put Spread
* Monthly Options
* Back-test length: three-years
* Open 1-day After Earnings
* Close 29-days Later
* Holding Period: 30-Days per Earnings
 
Winning Trades: 11
Losing Trades: 1
Post-Earnings Short Put Spread Return:  85.8
Annualized Return:  87


We see a 85.8% return, testing this over the last 12 earnings dates in The Coca-Cola Company. That's a total of just 360 days (30 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 11 times and lost 1 times, for a 92% win-rate and again, that 85.8% return in less than one-full year of trading. 

MORE TO IT THAN MEETS THE EYE 
While a short put spread is a strategy that gains profits if the underlying stock "doesn't go down a lot," there is more to this with The Coca-Cola Company. 

In many ways, earnings results are just a coin flip -- and we are not interested in flipping coins with option strategies. What we're after with this approach is identifying companies that make their large stock move the day after earnings -- whether that's up or down -- and after that, find a sense of equilibrium in the stock price for the next month. This is what we find in The Coca-Cola Company (NYSE:KO) . 

We can see that this idea has been a winner more times than it has been a loser -- a 92% win-rate. It's that positive win-rate that has created that large 87% annualized return. 

WHAT HAPPENED 
Traders that have a plan guess less. This is how people profit from the option market. Take a reasonable idea or hypothesis, test it, and apply lessons learned. 

We hope, if nothing else, you have learned about The Coca-Cola Company (NYSE:KO) and the intelligence and methodology of option trading and this idea of equilibrium right after earnings.


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.

 

 

 

 

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Options Intelligence: Post Earnings Trading in Ambarella Inc (NASDAQ:AMBA)

 

intelligence_2.jpg

 

Ambarella Inc (NASDAQ:AMBA) : Options Intelligence: Earnings Trading

Date Published: 

LEDE 
This is a simple option trade that starts the day after Ambarella Inc (NASDAQ:AMBA) earnings and lasts for the one month to follow, that has been a winner for 3 straight years. 

Ambarella Inc (NASDAQ:AMBA) Earnings 
While the mainstream media likes to focus on the actual earnings move for a stock, that's the distraction when it comes to the option market. 

For Ambarella 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-month out of the money put spread, the results were simply staggering. 

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

 

setup_1_29_after_custom_e.PNG



Rules 
* Open short put spread one day after earnings 
* Close short put spread 29 days later 
* Use the 30-day options 

RETURNS 
If we sold this out-of-the-money put spread in Ambarella Inc (NASDAQ:AMBA) over the last three-years but only held it after earnings we get these results: 

 

Short Put Spread
* Monthly Options
* Back-test length: three-years
* Open 1-day After Earnings
* Close 29-days Later
* Holding Period: 30-Days per Earnings
 
Winning Trades: 11
Losing Trades: 1
Post-Earnings Short Put Spread Return:  69.4
Annualized Return:  70


We see a 69.4% return, testing this over the last 12 earnings dates in Ambarella Inc. That's a total of just 360 days (30 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 11 times and lost 1 times, for a 92% win-rate. 

Here are the results or the last year:

Short Put Spread
* Monthly Options
* Back-test length: one-year
* Open 1-day After Earnings
* Close 29-days Later
* Holding Period: 30-Days per Earnings
 
Winning Trades: 4
Losing Trades: 0
Post-Earnings Short Put Spread Return:  28.6
Annualized Return:  85.8


So we can see it has worked for all of the most recent four earnings releases. This is not a panacea -- there is no guarantee this will work. What we see is that over time, this has worked quite consistently and we have a strong rationale to explain it. Here is that rationale. 

MORE TO IT THAN MEETS THE EYE 
While a short put spread is a strategy that gains profits if the underlying stock "doesn't go down a lot," there is more to this with Ambarella Inc. 

This strategy, and that's what it is, a strategy, not some weird promise of a silver bullet, does not take on the risk of earnings, and while it's slightly bullish, it really isn't a stock direction investment either. In many ways, earnings results are just a coin flip -- and we are not interested in flipping coins with option strategies. 

What we're after with this approach is identifying companies that make their large stock move the day after earnings -- whether that's up or down -- and after that, find a sense of equilibrium in the stock price for the next month. This is what we find in Ambarella Inc (NASDAQ:AMBA) . 

We can see that this idea has been a winner more times than it has been a loser -- a 92% win-rate. It's that positive win-rate that has created that large 70% annualized return. 

WHAT HAPPENED 
Traders that have a plan guess less. This is how people profit from the option market. Take a reasonable idea or hypothesis, test it, and apply lessons learned. 

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


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. 

The author is long shares of Ambarella Inc (NASDAQ:AMBA) 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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1 hour ago, Ophir Gottlieb said:

Rules 
* Open short put spread one day after earnings 
* Close short put spread 29 days later 
* Use the 30-day options 

 

1 hour ago, Ophir Gottlieb said:

Short Put Spread * Monthly Options

@Ophir Gottlieb  How do you specify using only the monthly options?

If I put in a 30 day rollover, then it looks for options that are 30 days to expiration on the day after earnings.  In the case of AMBA, the most recent earnings was AMC 2/28.  The trade was opened on 3/2, but it chose the Mar31 expiration.  The cycle before, earnings was on 12/1, trade opened on 12/5, but chose the Jan6 expiration.  So, how do you get it to do only monthly options?

 

Have you considered having an option to disable weeklies?  Some of the weeklies are so thinly traded that backtesting on them may not make sense.  Being able to turn them off would be helpful.

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4 hours ago, Ophir Gottlieb said:

 

The Intelligence Behind Options Earnings Trading in The Coca-Cola Company (NYSE:KO)

 

intelligence_1.jpg

 

The Coca-Cola Company (NYSE:KO) : The Intelligence Behind Options Earnings Trading

Date Published: 

LEDE 
This is a simple options trade that starts the day after The Coca-Cola Company (NYSE:KO) earnings and lasts for the one month to follow, that has been a winner for 3 straight years. 

The Coca-Cola Company (NYSE:KO) Earnings 
While the mainstream media likes to focus on the actual earnings move for a stock, that's the distraction when it comes to the option market. 

For The Coca-Cola Company, irrespective of whether the earnings move was up or down, if we waited one day after the stock move, and then sold an one-month out of the money put spread, the results were simply staggering. 

STORY 
Everyone knows that the day of an earnings announcement is a risky event for a stock. This can be explicitly seen in the option market, where the implied volatility (the expected stock move) rises into the earnings event. 

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

 

setup_1_29_after_custom_e.PNG



Rules 
* Open short put spread one day after earnings 
* Close short put spread 29 days later 
* Use the 30-day options 

RETURNS 
If we sold this out-of-the-money put spread in The Coca-Cola Company (NYSE:KO) over the last three-years but only held it after earnings we get these results: 

 

Short Put Spread
* Monthly Options
* Back-test length: three-years
* Open 1-day After Earnings
* Close 29-days Later
* Holding Period: 30-Days per Earnings
 
Winning Trades: 11
Losing Trades: 1
Post-Earnings Short Put Spread Return:  85.8
Annualized Return:  87


We see a 85.8% return, testing this over the last 12 earnings dates in The Coca-Cola Company. That's a total of just 360 days (30 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 11 times and lost 1 times, for a 92% win-rate and again, that 85.8% return in less than one-full year of trading. 

MORE TO IT THAN MEETS THE EYE 
While a short put spread is a strategy that gains profits if the underlying stock "doesn't go down a lot," there is more to this with The Coca-Cola Company. 

In many ways, earnings results are just a coin flip -- and we are not interested in flipping coins with option strategies. What we're after with this approach is identifying companies that make their large stock move the day after earnings -- whether that's up or down -- and after that, find a sense of equilibrium in the stock price for the next month. This is what we find in The Coca-Cola Company (NYSE:KO) . 

We can see that this idea has been a winner more times than it has been a loser -- a 92% win-rate. It's that positive win-rate that has created that large 87% annualized return. 

WHAT HAPPENED 
Traders that have a plan guess less. This is how people profit from the option market. Take a reasonable idea or hypothesis, test it, and apply lessons learned. 

We hope, if nothing else, you have learned about The Coca-Cola Company (NYSE:KO) and the intelligence and methodology of option trading and this idea of equilibrium right after earnings.


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.

 

 

 

 

@Ophir Gottlieb What are the Delta's of each leg of the bull put spread?  This article and AMBA both stipulate out of the money put spreads, however this is quite ambiguous. Without the Delta's, it's impossible to determine how far away from the money we need to go in order to maintain the winning percentage.  Thanks. 

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1 minute ago, SBatch said:

@Ophir Gottlieb What are the Delta's of each leg of the bull put spread?  This article and AMBA both stipulate out of the money put spreads, however this is quite ambiguous. Without the Delta's, it's impossible to determine how far away from the money we need to go in order to maintain the winning percentage.  Thanks. 

From trial and error, it looked like it was something like a -30d/+10d spread.

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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. 

      The Trade After the Excitement 
      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 
      There are patterns to stock behaviors before and after earnings and those patterns reveal opportunities in the option market, without taking the actual risk of earnings. You can find them, stock by stock, Apple, Google, Netflix and of course Autodesk Inc are just a handful of examples. There has been edge here with this strategy. 

      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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