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By Kim
Before ever entering a trade, we need a plan. For example, we want to know whether we should avoid earnings, or trade with earnings. Knowing where to place a stop loss, and even a limit gain. Knowing which strike to trade. Knowing whether to trade the monthly or weekly options.
But it even goes further – even if we know which direction we think the stock will go – do we sell puts or sell a put spread? Do we buy calls or a call spread? Should we be net owners or sellers of volatility? Has there been measurable edge in the trade in the past, or not?
This is how people profit from the option market — it’s preparation, not luck.
All of these questions were designed to be answered with the CMLviz Trade Machine, which is an option back-tester created by Capital Market Laboratories (CML). I have been in the same circle as this company’s founder for years.
CML is in fact a member of the famed Thomson First Call roster. Their research sits side-by-side with Goldman Sachs, Morgan Stanley, Barclays and the rest of the bulge bracket banks, but they have a different goal: To break the information asymmetry that exists between the top 0.1% and the rest.
To learn more about the product, you can tap on the link below. You will see a 4- minute video demonstration. I think, for many of you, it will become a valuable tool to supplement your trading and the analysis that Steady Options provides.
Tap Here to Watch the Video and Sign Up
P.S. Our members know that I rarely promote other products. But this one really got me excited. I encourage you to give it a try. They plan tons of additional functionality in the upcoming months, including custom strategies to trade around earnings which can be a great benefit for us.
CMLviz Trade Machine is constantly adding new features, and the price will be increasing as new features are added. Those who sign up are grandfathered at the price they signed up even as the prices increase.
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By Kim
Couple of weeks ago, the CML published an article The Volatility Option Trade After Earnings in PayPal Holdings Inc.
The setup was:
"The week following PayPal Holdings Inc (NASDAQ:PYPL) has had one fairly consistent pattern -- volatility. If we take a myopic view after looking at the last three-years and focus on the last six-months, that pattern is yet more decisive. Irrespective of whether the earnings move was large or small, if we tested waiting one-day after earnings and then holding a long out of the money (40 delta) strangle for one-week (using two-week 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."
If we bought the out-of-the-money strangle in PayPal Holdings Inc (NASDAQ:PYPL) over the last three-years but only held it after earnings we get these results:
PYPL
Long out-of-the-money strangle % Wins: 64% Wins: 7 Losses: 4 % Return: 174% Tap Here to See the Back-test
The backtest also defines very clear rules for the trade:
* Open the long out-of-the-money (40 delta) strangle one-calendar day after earnings.
* Close the strangle 7 calendar days after earnings.
* Use the options closest to 14 days from expiration (but more than 7 days).
On July 25, I posted the link to the PYPL potential trade on the forum:
On the next day I posted my entry:
Please note that this trade didn't make it into the official model portfolio due to higher potential risk - hence I mentioned "small allocation only".
The next day, some of the members started posting their exit prices:
I was out a day later for 27% gain:
Some members did even better:
And finally an interesting comment from another member:
Those are real trades, from real traders, posted in real time.
Attention tastytrade: Buying premium does work - you just need to know how to do it.
This is how people profit from the option market. It's not guessing or speculation. Take a reasonable idea or hypothesis, use a rationale system to help overcome cognitive biases, and test it. Tap the link below to learn more:
Tap Here to See the Tools at Work
When you combine the best options trading community with the best backtester, the results are unbeatable.
Related articles:
Lessons From Facebook Earnings Disaster The Incredible Option Trade In VXX Post Earnings Option Trade In Facebook Why We Sell Our Straddles Before Earnings Earnings Momentum Trading In Google -
By Ophir Gottlieb
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. -
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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By Ophir Gottlieb
How to Trade Options Before Earnings in Broadcom Limited (NASDAQ:AVGO)
How to Trade Options Before Earnings in Broadcom Limited (NASDAQ:AVGO)
Date Published: 2017-05-15
PREFACE
Trading options in a short window before earnings are released 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 a annualized rate of 198%. Now that's worth looking into.
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.
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 like Broadcom Limited (NASDAQ:AVGO) 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 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 taking no earnings bets.
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 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 Broadcom Limited (NASDAQ:AVGO) 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: 17.1% Annualized Return: 102%
We see a 17.1% return, testing this over the last 12 earnings dates in Broadcom Limited. That's a total of just 60 days (5 days for each earnings date, over 12 earnings dates). That's a annualized rate of 102%.
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, but here's the key -- it wins about half of the time, but the average gain per winning trade is substantially larger than the average loss on a losing trade:
Consistently Successful
This idea has also been a successful approach over the last two-years:
Long At-the-Money Straddle * Monthly Options * Back-test length: two-years * Open 6-days Before Earnings * Close 1-day Before Earnings * Holding Period: 5-Days per Earnings Winning Trades: 4 Losing Trades: 4 Pre-Earnings Straddle Return: 22% Annualized Return: 198%
Now we see a 22% return, testing this over the last 8 earnings dates which is a annualized rate of 198%.
Yet again, we see a trade that wins about half the time, but the average win is much larger than the average loss:
If you really want to see how we found this, and how to do it for other stocks like Apple, Google and Amazon, here is a 1-minute and 34-second video that every professional option trader would rather that you don't see.
Learn more here: Try the Back-tester Yourself
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. This is how people profit from the option market -- 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.
Back-test Link
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By Ophir Gottlieb
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).
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