How to Trade Options Before Earnings in Fabrinet (NYSE:FN)
 
  How to Trade Options Before Earnings in Fabrinet (NYSE:FN)
Date Published: 2017-06-28 

This article can be seen in a video or as a full written article below the video. 
 

PREFACE 
Trading options in Fabrinet (NYSE:FN) using a short window before earnings are released has been a staggering winner over the last several years. 

This is it -- this is how people profit from the option market. Identifying strategies that are tightly risk controlled, take no stock direction risk and no earnings risk. Strategies that are immune from a bull or bear market. 

STORY 
Everyone knows that the day of an earnings announcement is a risky event for a stock. But the question every option trader, whether professional or amateur, has long asked is if there is a way to profit from this known implied volatility rise. It turns out, that over the long-run, for stocks with certain tendencies, the answer is actually, yes. 
  Yes, there is a systematic way to trade this repeating phenomenon, without making a bet on earnings or stock direction.

THE SET UP 
What a trader wants to do is to see the results of buying an at the money straddle a couple of weeks before earnings, and then sell that straddle just before earnings. Here is the setup: 
 

We are testing opening the position 14 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 straddle in Fabrinet (NYSE:FN) over the last three-years but only held it before earnings we get these results: 
   
Click here to see the back-test live

That's a 162% return over the last three-years, with 9 winning trades and 3 losing trades. But, let's take a step toward risk reduction before we move forward. 

While we are looking at this same trade, let's also set a rule that if at any point in the two-week period the straddle loses 25% of its value, we just close it and wait for the next pre-earnings cycle. While we're at it, we will do the same with the upside -- that is, if at any time during the two-weeks the straddle goes up 25%, we take the profits and close the trade. 

For clarity, this is what we test: 
 

And now we can see the results over the same three-year period: 
   
Click here to see the back-test live

While we are taking 75% less risk, we are seeing about the same results -- we will continue down this risk adjusted path for the rest of this dossier. 

Digging Deeper 
Now we can see the results over the last two-years: 
   
Click here to see the back-test live

That's a 126% return and 7 winning trades with 1 losing trade. Remember, this trade takes no stock direction risk and no earnings risk -- this is completely agnostic to a bull or bear market. 

Even further, that 126% actually came on just 16 weeks of trading (2-weeks per earnings cycle, 8 earnings cycles), which is over 400% annualized returns. 

Now we look at the last year: 
   
Click here to see the back-test live

We see a 65.2% percent return on 3 winning trade and 1 losing trade. 

Finally, we can look at the last six-months: 
   
Click here to see the back-test live

That's 40.1%, winning both of the last two pre-earnings trades. 

WHAT HAPPENED 
This is it -- this is how people profit from the option market. Identifying strategies that are tightly risk controlled, take no stock direction bets or earnings risk. It's preparation, not luck. 

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.

The Secret Behind Options Pre-Earnings Trading in Intel Corporation (NASDAQ:INTC)
 
 
Intel Corporation (NASDAQ:INTC): The Wonderful Secret Behind Options Pre-Earnings Trading
Date Published: 2017-05-4

PREFACE 
There is a wonderful secret to trading options right before earnings announcements in Intel Corporation (NASDAQ:INTC) , 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. 

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 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,' but never take the risk of actually owning options during the earnings release. 

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: 
 


We are testing opening the position in Intel Corporation 6 days before earnings and then closing the position right before earnings. This is not making any earnings bet. This is notmaking 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 Intel Corporation (NASDAQ:INTC) over the last three-years but only held it before earnings we get these results: 
 


We see a 47.8% return, testing this over the last 12 earnings dates in Intel Corporation. That's a total of just 72 days (6 days for each earnings date, over 12 earnings dates). That's a annualized rate of 242%. 

We can also see that the win/loss rate is split with 6-wins and 6-losses, yet the return is enormous. That means the winning trades are much larger than the losing trades, which is exactly what a successful trading strategy attempts to do. No magic bullets -- rather smart methodologies for wealth creation. 

MORE TO IT THAN MEETS THE EYE 
While this strategy is benefiting from the implied volatility rise into earnings for Intel Corporation (NASDAQ:INTC), what it's really doing is far more intelligent. 

The ideal stocks for this strategy have a couple of common characteristics: 

(i) The companies rarely pre-announce earnings -- this is an investment that does not look to make an earnings bet, so an earnings pre-announcement is the opposite of what we're hoping for. 

(ii) The underlying stock price of these companies tend to move a lot (or some) as earnings approach and various institutions and traders shuffle the stock price around in anticipation of the earnings result. The more one sided the outside world starts betting on direction -- up or down, the better it is to own the straddle. 

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

Test the results on Apple Inc and Alphabet Inc, and the results are staggering. 

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 Intel Corporation Inc (NASDAQ:INTC) as of this writing. 

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