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MatthewT

How to replicate this SPX Weekly setup on TMP

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CMLViz recently had an article on SPX Weekly Call Spreads on Trademachine Pro - and someone used that setup on YouTube to illustrate - https://www.youtube.com/watch?v=XeBG8tQ6C1U&t=617s

Which returned results for variations on 75/73, 74/72 etc Call Spreads

And the results using default settings were like this

spx-delta 70.png

When I set this up using default settings in TMP - I get this

 

 

spx-my-results.png

So I am not getting any 70-ish Delta setup results

I am a new TMP user and I do understand that the first set of results - while the original author - must have been using some settings other than TMP default, I cannot think of what settings those might have been

If anybody saw tgat CMLviz article or knows what settings might produce those SPX 70-ish Delta setups, I would appreciate it :-)

 

 

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    • By Ophir Gottlieb
      That's great, because it means there is discord, and discord, especially for Apple ahead of earnings has meant a repeating pattern for the clever trader to take advantage of. 
       
      One week before Apple's earnings would be January 25th, 2018. 

      Apple's Disagreement 
      Sometimes a bullish momentum bet works great -- and in fact, for Apple that has been a strong pattern ahead of earnings. But with a toppy market, sometimes a different approach can work as well. 

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

      This approach has returned 189% with 10 wins and 2 losses over the last 3-years. 

      The Trade Before Earnings 
      What a trader wants to do is to see the results of buying a slightly out of the money strangle one-week before earnings, and then sell that strangle just before earnings. 

      Here is the setup: 
       


      We are testing opening the position 7 calendar 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 a 40-delta strangle, which is a fancy of saying, buying both the 40-delta call and 40-delta put, for a non-directional bet on volatility. 

      Returns 
      If we did this long strangle in Apple Inc (NASDAQ:AAPL) over the last three-years, but only held it before earnings, using the options closest to 14 days from expiration, we get these results: 
       
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      We see a 189% return, testing this over the last 12 earnings dates in Apple Inc. 

      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 a 83.3% win-rate on an one-week trade. 

      Setting Expectations 
      While this strategy has an overall return of 189%, the trade details keep us in bounds with expectations: 
            ➡ The average percent return per trade was 16.9% over 7-days. 
            ➡ The average percent return per winning trade was 21.8% over 7-days. 
            ➡ The average percent return per losing trade was -7.6% over 7-days. 

      We like the comfort of a trade that, when it loses, it isn't a disaster -- at least not historically. 

      Option Trading in the Last Year 
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      In the latest year this pre-earnings option trade has 4 wins and lost 0 times and returned 98.2%. 
            ➡ Over just the last year, the average percent return per trade was 22.3% over 7-days. 

      WHAT HAPPENED 
      We don't always have to look at bullish back-tests in a bull market -- sometimes a straight down the middle volatility pattern pops up. 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: 

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    • By Ophir Gottlieb
      WHAT? 
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      The VIX spot is derived from the implied volatility of SPX options. But the tradeable VIX is actually in the futures market. Here is how VIX futures look as of 8-22-2017, pay special attention to the price for each expiry, and how it rises with each successive date. 
       

      We can see a futures expiration every week through 9-27-2017, and then it goes monthly. But that's not the key, here. 

      Notice that for every time period further out in the future, the price of the VIX future is higher than the last. This pattern, when the future price is higher than the price behind it, is called "contango." The opposite, for those curious, is called "backwardation." 

      BACK TO THE VXX OPTIONS 
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      Yep, the VXX is down 99.96% since inception. The reason is simply that VIX is almost always in contango. For the times that VIX falls out of contango, we can see abrupt pops in the VXX which we have highlighted in the image above. 

      Note that the VXX does a reverse split quite often and that's why it isn't trading at $0.01. It splits into fewer shares which raises the stock price -- obviously having no affect on the actual option trade. The most recent split is 8-23-2017. 

      OK - TALK TO ME ABOUT THE TRADE 
      For those that want more information on the trading VXX options and VIX futures and options the CBOE is a treasure trove of information as is Jill's article 5 Misperceptions About VXX. 

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      We can see that this VXX trading strategy hasn't been a winner all the time, but it has won a lot. 

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      Option Trading in the Last Year 
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            ➡ The average percent return per winning trade was 63.4% (in 90 days). 
            ➡ The percent return for the one losing trade was -1.9% (in 90 days). 

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      WHAT HAPPENED 
      Successful option trading is about preparation -- it's methodical -- it's scientific. This is it -- this is how people profit from the option market, and this can be done with any stock, ETF, ETN or index. 

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      SteadyOptions launched Creating Alpha strategy that uses a different strategy, limiting the loss significantly. This strategy still wins 80% of the time, but the loss is typically limited to ~5%. The winners are obviously much smaller as well.

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      IDEA 
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      The Short-term Option Swing Trade Ahead of Earnings in Alphabet Inc 
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      Oftentimes we look at option set-ups that are longer-term, and take no directional bet -- this is not one of those times. This is a no holds barred short-term bullish swing trade with options and that's it. It's a bullish bet, so must be conscious of the delta risk. 

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      In English, at the close of each trading day we check to see if the long option is either up or down 40% relative to the open price. If it was, the trade was closed. 

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      Setting Expectations 
      While this strategy has an overall return of 136%, the trade details keep us in bounds with expectations: 
            ➡ The average percent return per trade was 21% over two-days. 
            ➡ The average percent return per winning trade was 28.4% over two-days. 
            ➡ The percent return for the losing trade was -31% over two-days. 

      Looking at More Recent History 
      We did a multi-year back-test above, now we can look at just the last year: 
       
      GOOGL: Long 40 Delta Call   % Wins: 100%   Wins: 4   Losses: 0   % Return:  102% 
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      We're now looking at102% returns, on 4 winning trades and 0 losing trades. 
            ➡ The average percent return over the last year per trade was 22%. 

      WHAT HAPPENED 
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      Past performance is not an indication of future results. 
       
       
       
    • By Ophir Gottlieb
      The news was three-fold fold: 

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      (3) Palo Alto Networks will host a conference call for analysts and investors to discuss its fiscal third quarter 2018 results and outlook for its fiscal fourth quarter and full fiscal year 2018 on Monday, June 4th before the market opens. 

      It's that last little bit that changed everything for option traders. PANW burying its news in a late Friday press release leaves the option holders with a coin flip -- not a well measured probability bet. 

      PREFACE 
      On 4-27-2018, we published the dossier Applying The New Standard of Repeating Momentum in Palo Alto Networks Inc. 

      In that dossier we noted that "We have empirically and explicitly demonstrated the repeating pattern of bullish momentum right before earnings. [Further we find] in Palo Alto Networks Inc (NYSE:PANW) exactly the two-tiered pattern we researched again -- stocks that have pre-earnings momentum, and ones with a recent history of large beats that push this momentum into the next quarter." 

      These were the results over the last one-year in Palo Alto Networks of owning a 40 delta (out of the money) call 6-days pre-earnings and selling the call before the earnings announcement. Since PANW reports after the market closes, this test looks at holding the call right until the end of that trading day, and then selling before the announcement. 
       
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      With the extremely odd news, released at an extremely odd time, this is no longer the case. Earnings be released before the market opens, and will not give option traders the ability to exit any option positions before the earnings event occurs. 

      WHAT HAPPENED 
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      Usually when companies pre-release, it's very early -- like Micron did about 6-weeks before earnings in the last couple of weeks. 

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      But, this is it, there is no changing it now. For those that are long calls in the weekly options, the only hope to turn a profit on that position now is for a large earnings move up for the stock. The hope is that the pre-announcement will be backed by even better EPS and guidance news and that the introduction of a Silicon Valley super star as CEO drives the stock higher. 

      But, make no mistake, PANW burying its news in a late Friday press release leaves the option holders with a coin flip -- not a well measured probability bet. 

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      Risk Disclosure 
      You should read the Characteristics and Risks of Standardized Options. 

      Past performance is not an indication of future results. 

      Ophir Gottlieb is the CEO & Co-founder of Capital Market Laboratories. Mr Gottlieb’s learning background stems from his graduate work in mathematics and measure theory at Stanford University and his time as an option market maker on the NYSE and CBOE exchange floors. He has been cited by Yahoo! Finance, CNNMoney, MarketWatch, Business Insider, Reuters, Bloomberg, Wall St. Journal, Dow Jones Newswire, Barron’s, Forbes, SF Chronicle, Chicago Tribune and Miami Herald and is often seen on financial television. He created and authored what was believed to be the most heavily followed option trading blog in the world for three-years.This article is used here with permission and originally appeared here.
    • By Ophir Gottlieb
      Backtest 1: The Bullish Option Trade Before Earnings in Alphabet Inc
      We start with the backtest that shows a higher historical return, but lower historical win rate. 

      We will examine the outcome of getting long a weekly call option in Alphabet Inc 7-days before earnings (using calendar days) and selling the call before the earnings announcement if and only if the stock price is above the 50-day simple moving average. 

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


      And here is the technical analysis -- note only one is "turned on," and that is the 50-day moving average requirement.: 
       


      Here's a visual representation, where the stock price 7-days before earnings (circled) is above the 50-day moving average (black line), and therefore triggers a back-test. 
       


      If the stock price fails the technical requirement, it's fine, we just put a pin in it and check next quarter. 
       
      RISK MANAGEMENT
      We can add another layer of risk management to the back-test by instituting and 40% stop loss and a 40% limit gain. Here is that setting: 
       


      In English, at the close of each trading day we check to see if the long option is either up or down 40% relative to the open price. If it was, the trade was closed. 
       
      RESULTS
      Here are the results over the last three-years in Alphabet Inc: 
       
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      Notice that while this is a 3-year back-test and we would expect four times that many earnings triggers (4 earnings per year), the technical requirement using the 50-day moving average has avoided 2 pre-earnings attempts. In other words -- it's working. 
       
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      With a similar set-up, we examine the same phenomenon -- that is, pre-earnings bullish momentum. But, this time, rather than backtesting owning a call option with the earnings date occurring in the options expiration period, we look at the other side. 

      We examine selling a put spread in options that expire before earnings are announced. Specifically, we look at opening the trade 7 calendar days before earnings, selling a 40 delta / 10 delta put spread, in options that expire the closest to 5-days but before the earnings date. We don't us any stops or limits -- this backtest simply waits until expiration. 

      We also note that the technical requirements with the stock above the 50-day moving average, are identical -- this should result in the same number of trades. 

      This is a trade, unlike the long call, that takes a position on the stock that is simply "not bearish," as opposed to aggressively bullish. 
       
      RESULTS
      Here are the results over the last three-years in Alphabet Inc for the short put spread -- again, since these options are selected to expire before the earnings dates, this backtest does not take earnings risk. 
       
      GOOGL: Short 40 / 10 Delta put Spread   % Wins: 100%   Wins: 10   Losses: 0   % Return:  161% 
      Tap Here to See the Back-test
      The mechanics of the TradeMachine® stock option backtester are that it uses end of day prices for every back-test entry and exit (every trigger).
       
      Setting Expectations
      While this strategy had an overall return of 161%, the trade details keep us in bounds with expectations: 
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      Decision
      So, there you have it in black and white. Owning the pre-earnings call yielded a substantially higher return, but with a 70% win rate, and the 3 losses, they were substantial, averaging -33.5%. returns (losses). 

      This is in contrast to the short put spread which has yielded considerably smaller returns, but no losses in the last 3-years. 
       
      Is This Just Because Of a Bull Market?

      It's a fair question to ask if these returns are simply a reflection of a bull market rather than a successful strategy. It turns out that this phenomenon of pre-earnings optimism also worked very well during 2007-2008, when the S&P 500 collapsed into the "Great Recession." 
       


      The average return for this strategy, by stock, using the Nasdaq 100 and Dow 30 as the study group, saw a 45.3% return over those 2-years. And, of course, these are just 8 trades per stock, each lasting 7 days. 

      * Yes. We are empirical. 

      Back-testing More Time Periods in Alphabet Inc 
      Now we can look at just the last year as well. We start with the long call back-test in which the options include the earnings date within the expiration period. 
       
      GOOGL: Long 40 Delta Call   % Wins: 100.00%   Wins: 2   Losses: 0   % Return:  115% 
      Tap Here to See the Back-test

      And now we can look at the short put spread in which the options exclude the earnings date within the expiration period. 
       
      GOOGL: Short 40 / 10 Delta Put Spread   % Wins: 100.00%   Wins: 2   Losses: 0   % Return:  42.3% 
      Tap Here to See the Back-test

      Again, the contrast is clear, but the decision is personal and not obvious. 
       
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      Don't trade blind, please. Try pattern recognition. 

      Risk Disclosure 
      Past performance is not an indication of future results. 
       
      Ophir Gottlieb is the CEO & Co-founder of Capital Market Laboratories. Mr Gottlieb’s learning background stems from his graduate work in mathematics and measure theory at Stanford University and his time as an option market maker. He has been cited by Yahoo! Finance, CNNMoney, MarketWatch, Business Insider, Reuters, Bloomberg, Wall St. Journal, Dow Jones Newswire, Barron’s, Forbes, SF Chronicle, Chicago Tribune and Miami Herald. He created and authored what was believed to be the most heavily followed option trading blog in the world for three-years.

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    • By Ophir Gottlieb
      These are all trade-able events, at anytime, without concern for earnings. Today we look at exactly what has worked for Apple (AAPL). 
       
      Take well bounded risk, small, and direction-less, and let a tweet, a news headline, an Apple headline, a day of pessimism or a day of optimism, whatever -- move the market, as it has so often in this new volatility regime.
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      We will examine the outcome of going long a short-term at-the-money (50 delta) straddle, in options that are the closest to seven-days from expiration. But we have a rule -- it's a stop and a limit of 10%, and, we back-test re-opening the position immediately, as opposed to waiting for 5-days later. 

      Here is the stock chart for Apple since October 1st -- focus on the volatility, not the direction -- these are daily candles. 
       

      Chart from CMLviz.com

      We can volatility and a general downtrend, in fact, a 14% drop in less than 6 weeks. But let's not worry about direction, let's try to find a back-test that benefits from that volatility that is in fact up 92% in just six-weeks and takes no stock direction risk at all. Here it is, first, we enter the long straddle. 
       


      Second, we set a very specific type of stop and limit: 
       


      At the end of each day, the back-tester checks to see if the long straddle is up or down 10%. If it is, it closes the position, and re-opens at the same time, another long straddle, but this one now re-adjusted for what is the newest at-the-money strike price. 

      We have a full blown tutorial write up on this type of stop/limit behavior in the Discover Tab: Stops & Limits Roll Timing What does "open again at normal time" vs "immediately" mean? 

      The Results 
      We back-tested this only over the last six-weeks. We are hyper focusing not on a long drawn out pattern, but rather this time, right now, this period of volatility. 
       

       
      AAPL: Long 50 Delta Straddle   % Wins: 58.8%   Wins: 10   Losses: 7   % Return:  92% 
      Tap Here to See the Back-test
      The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger). 

      Notice that this has triggered a trade 17 times in the last six-weeks and while the stock has dropped 14%, the option strategy, which takes no directional positioning, is up more than 92% in six-weeks time. This is a fast moving, re-adjusting straddle. The idea is simple: 

      Take well bounded risk, small, and direction-less, and let a tweet, a news headline, an Apple headline, a day of pessimism or a day of optimism, whatever -- move the market, as it has so often in this new volatility regime. 
       

       
      Setting Expectations
      Since we use end of day open and closes, while this strategy has an overall return of 92%, the trade details keep us in bounds with expectations: 

            ➡ The average percent return per trade was 11%. 
            ➡ The average percent return per winning trade was 29.9%. 
            ➡ The percent return per losing trade was -16%. 

      Not only are we seeing a high winning percentage, but also that the average win is twice as large as the average loss. Further, this trade takes no stock direction risk at all. 
       
      WHAT HAPPENED
      When the market shifts, we need a minimum amount of data to adjust, and succeed. This is how people profit from the option market -- it's not luck, it's preparation. 
      Tap Here to See the Tools at Work 

      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. 

      Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.
       
      Ophir Gottlieb is the CEO & Co-founder of Capital Market Laboratories. Mr Gottlieb’s learning background stems from his graduate work in mathematics and measure theory at Stanford University and his time as an option market maker. He has been cited by Yahoo! Finance, CNNMoney, MarketWatch, Business Insider, Reuters, Bloomberg, Wall St. Journal, Dow Jones Newswire, Barron’s, Forbes, SF Chronicle, Chicago Tribune and Miami Herald. He created and authored what was believed to be the most heavily followed option trading blog in the world for three-years.

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    • By Ophir Gottlieb
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        Take well bounded risk, small, and direction-less, and let a tweet, a news headline, an Apple headline, a day of pessimism or a day of optimism, whatever -- move the market, as it has so often in this new volatility regime.

      The Short-term Option Volatility Trade in Alibaba Group Holding 
      We will examine the outcome of going long a short-term at-the-money (50 delta) straddle, in options that are the closest to five-days from expiration. But we have a rule -- it's a stop and a limit of 10%, and, we back-test re-opening the position immediately, as opposed to waiting for 5-days later. 

      Here is the stock chart for Alibaba since October 1st -- focus on the volatility, not the direction -- these are daily candles. 
       
      So we see the wild gyrations -- let's not worry about direction, let's try to find a back-test that benefits from that volatility. Here it is, first, we enter the long straddle. 
       

      Second, we set a very specific type of stop and limit: 
       

      At the end of each day, the back-tester checks to see if the long straddle is up or down 10%. If it is, it closes the position, and re-opens at the same time, another long straddle, but this one now re-adjusted for what is the newest at-the-money strike price. 

      We have a full blown tutorial write up on this type of stop/limit behavior in the Discover Tab: Stops & Limits Roll Timing What does "open again at normal time" vs "immediately" mean? 

      The Results 
      We back-tested this only over the last six-weeks. We are hyper focusing not on a long drawn out pattern, but rather this time, right now, this period of volatility. 
       


        Tap Here to See the Back-test

      The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger). 

      Notice that this has triggered a trade 20 times in the last six-weeks. This is a fast moving, re-adjusting straddle. The idea is simple: 

      Take well bounded risk, small, and direction-less, and let a tweet, a news headline, an Apple headline, a day of pessimism or a day of optimism, whatever -- move the market, as it has so often in this new volatility regime. 
       
      Setting Expectations
      Since we use end of day open and closes, while this strategy has an overall return of 408%, the trade details keep us in bounds with expectations: 

            ➡ The average percent return per trade was 23.4%. 
            ➡ The average percent return per winning trade was 49.2%. 
            ➡ The percent return per losing trade was -24.6%. 

      Not only are we seeing a high winning percentage, but also that the average win is twice as large as the average loss. Further, this trade takes no stock direction risk at all. 
      WHAT HAPPENED
      This is why you have a Trade Machine membership. We can ride the evergreen patterns, and we have, for years. But when the market shifts, we need a minimum amount of data to adjust, and succeed. This is how people profit from the option market. 

      Tap Here to See the Tools at Work

      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. 

      Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.
       
      Related articles:
      The Incredible Option Trade In VXX The Volatility Option Trade In Apple Earnings Momentum Trade In Oracle Post Earnings Option Trade In Facebook Option Trade After Earnings In AutoZone Pre-Earnings Momentum Trade In Netflix Microsoft Pre-Earnings Momentum Trade Post Earnings Trade In FedEx Pre Earnings Pattern In Apple Earnings Momentum Trading In Google PANW Broke The Golden Rule How To Profit From PayPal Volatility
    • By Ophir Gottlieb
      For AutoZone Inc, irrespective of whether the earnings move was up or down, if we waited two-days after the stock move, and then sold a 3-week at out of the money iron condor (using monthly 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: 
       

      Rules 
      * Open the short iron condor two calendar days after earnings 
      * Close the iron condor 21 calendar days after earnings 
      * Use the options closest to 30 days from expiration (but at least 21-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 three weeks following earnings and it will stand to lose if the stock is volatile. 

      RISK MANAGEMENT 
      We can add another layer of risk management to the back-test by instituting and 40% stop loss and a 40% limit gain. Here is that setting: 
       

      In English, at the close of each trading day we check to see if the entire iron condor is either up or down 40% relative to the open price. If it was, the trade was closed. 

      Trade Discovery 
      We found this trade by using the TradeMachine® Pro scanner, looking at the S&P 500, post-earnings back-tests and specifically the short iron condor. Then we looked at 3-year back-tests and sorted by earnings date. 
       

      We can see AZO has the highest win rate and a rather large historical returns. 
       

      This can be a nice diversification for those with generally long volatility positions (long options). We do note the rather hectic stock price move after the latest earnings results were announced and a general downward trend. Here is a stock chart: 
       

      The back-tester computes all calculations using end of day prices, so two-days after earnings would be 9-21-2017 at (or near) the close. 

      To adjust an iron condor so that it is symmetric to downside and upside risk, you can read about option skew and the impact on iron condors here: 
      Option Skew -- What it is and Why It Exists 



      RESULTS 
      If we sold this 35/15 delta iron condor in AutoZone Inc (NYSE:AZO) over the last three-years but only held it after earnings we get these results: 


      Tap Here to See the Back-test
      We see a 282.5% return, testing this over the last 12 earnings dates in AutoZone Inc. That's a total of just 228 days (19 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. 

      Setting Expectations 
      While this strategy had an overall return of 282.5%, the trade details keep us in bounds with expectations: 
            ➡ The average percent return per trade was 22.82% over 19-days. 
            ➡ The average percent return per winning trade was 24.94% over 19-days. 
            ➡ The average percent return per losing trade was -0.51% over 19-days. 

      Over the Last Year 
      We can see similarly strong results over the last year:

      Tap Here to See the Back-test
      We see a 97% return, testing this over the last 4 earnings dates in AutoZone Inc, with 4 wins and 0 losses in that short-time period. 

      Setting Expectations 
      While this strategy had an overall return of 97%, the trade details keep us in bounds with expectations: 
            ➡ The average percent return per trade was 29% over 19-days. 

      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.  
    • By Ophir Gottlieb
      There is a bullish momentum pattern in Apple Inc (NASDAQ:AAPL) stock 2 calendar days after earnings, if and only if the stock showed a large gap up after the actual earnings announcement. 

      This is a conditional entry -- the company reports earnings and if the stock move off of that report is a 3% gain or larger, then a bullish position is back-tested looking for continuing momentum. The event is rare, but when it has occurred, the back-test results are noteworthy. 

      Apple Inc (NASDAQ:AAPL) Earnings 
      In Apple Inc, if the stock move immediately following an earnings result was large (3% or more to the upside), if we test waiting two-days after that earnings announcement and then bought a three-week at the money (50 delta) call, the results were quite strong. This back-test opens two-days after earnings were announced to try to find a stock that continues an upward trajectory after an earnings rally. 

      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: 
       
          Rules  Condition: Wait for the one-day stock move off of earnings, and if it shows a 3% gain or more in the underlying, then, follow these rules:  Open the long at-the-money call two-calendar days after earnings.  Close the long call 14 calendar days after earnings.  Use the options closest to 21 days from expiration (but more than 14 days). 
      This is a straight down the middle direction trade -- this trade wins if the stock is continues on an upward trajectory after a large earnings move the two-weeks following earnings and it will stand to lose if the stock does not rise. This is not a silver bullet -- it's a trade that needs to be carefully examined. 

      But, this is a conditional back-test, which is to say, it only triggers if an event before it occurs. 

      RISK CONTROL 
      Since blindly owning calls 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. 
       

      In English, at the close of every trading day, if the call 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 a stock rally early in the two-week period rather than waiting to close 14-days later. 

      Another risk reducing move we made was to use 21-day options and only hold them for 14-days so the trade doesn't suffer from total premium decay. 

      RESULTS 
      If we bought the at-the-money call in Apple Inc (NASDAQ:AAPL) over the last three-years but only held it after earnings and after an earnings pop higher, we get these results: 
       
      AAPL
      Long 50 Delta Call   % Wins: 80%   Wins: 4   Losses: 1   % Return:  151.9% 
      Tap Here to See the Back-test
      The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger). 

      Looking at Averages 
      The overall return was 151.9%; but the trade statistics tell us more with average trade results: 
            ➡ The average return per trade was 46.54% over each 12-day period. 
            ➡ The average return per winning trade was 76.92% over each 12-day period. 
            ➡ The average return per losing trade was -75% over each 12-day period. 
       
      WHAT HAPPENED 
      Bullish momentum and sentiment after of earnings can be quite powerful with the tailwind of an earnings beat. This is just one example of what has become a tradable phenomenon in Apple. To identify patterns that have repeated over and over again, empirically, we welcome you to watch this quick demonstration video: 

      Tap Here to See the Tools at Work 

      Risk Disclosure 
      You should read the Characteristics and Risks of Standardized Options. 

      Ophir Gottlieb is the CEO & Co-founder of Capital Market Laboratories. Mr Gottlieb’s learning background stems from his graduate work in mathematics and measure theory at Stanford University and his time as an option market maker on the NYSE and CBOE exchange floors. He has been cited by Yahoo! Finance, CNNMoney, MarketWatch, Business Insider, Reuters, Bloomberg, Wall St. Journal, Dow Jones Newswire, Barron’s, Forbes, SF Chronicle, Chicago Tribune and Miami Herald and is often seen on financial television. He created and authored what was believed to be the most heavily followed option trading blog in the world for three-years.This article is used here with permission and originally appeared here.
    • By Ophir Gottlieb
      There is a bullish momentum pattern in Netflix Inc (NASDAQ:NFLX) stock 7 calendar days before earnings, and we can capture that phenomenon explicitly by looking at returns in the option market. 

      LOGIC 
      The logic behind the back-test is easy to understand -- in a bull market there can be a stock rise ahead of earnings on optimism, or upward momentum, that sets in the one-week before an earnings date. 

      Stock Chart 
      We can start with a stock return chart over the last year comparing Netflix (in red) to the rest of FAANG. 
       


      Netflix has more than doubled the rest of the high momentum crew. 

      The Bullish Option Trade Before Earnings in Netflix Inc 
      We will examine the outcome of getting long a weekly call option in Netflix Inc 7-days before earnings (using calendar days) and selling the call 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. 
       


      RISK MANAGEMENT 
      We can add another layer of risk management to the back-test by instituting and 50% stop loss and a 50% limit gain. Note that this is a little different from our normal 40% stop and limit. Here is that setting: 
       


      In English, at the close of each trading day we check to see if the long option is either up or down 40% relative to the open price. If it was, the trade was closed. 

      Back-test Discovery 
      We found this back-test by looking at pre=-earnings strategies in the Nasdaq 100. We focused on 3-year results, and sorted by wins. 
       


      Don't worry, we will talk about those six companies with better scan results soon, but Netflix has a nice narrative around it that stands out. 

      RESULTS 
      Here are the results over the last three-years in Netflix Inc: 
       
      NFLX: Long 40 Delta Call   % Wins: 75%   Wins: 9   Losses: 3   % Return:  173% 
      Tap Here to See the Back-test
      We see a 173% return, testing this over the last 12 earnings dates in Netflix Inc. That's a total of just 84 days (7-days for each earnings date, over 12 earnings dates). This has been the results of following the trend of bullish sentiment into earnings while avoiding the actual earnings result. 

      We can also see that this strategy hasn't been a winner all the time, rather it has won 9 times and lost 3 times, for a 75% win-rate and again, that 173% return in less than six-full months of trading. 

      Setting Expectations 
      While this strategy had an overall return of 173%, the trade details keep us in bounds with expectations: 
            ➡ The average percent return per trade was 26%. 
            ➡ The average percent return per winning trade was 47.7%. 
            ➡ The average percent return per losing trade was -39%. 

      Back-testing More Time Periods in Netflix Inc 
      Now we can look at just the last year as well: 
       
      NFLX: Long 40 Delta Call   % Wins: 75%   Wins: 3   Losses: 1   % Return:  105% 
      Tap Here to See the Back-test
      We're now looking at 105% returns, on 3 winning trades and 1 losing trades. It's worth noting again that we are only talking about one-week of trading for each earnings release, so this is 105% in just 4-weeks of total trading. 
            ➡ The average percent return over the last year per trade was 26.1%. This is remarkably similar to the three-year result of a 26% average return. 
            ➡ The average percent return per winning trade was 40%. 
            ➡ The average percent return for the one losing trade was -15.7%. 

      Going Yet Further 
      While we're at it, we can take a look what really sets this back-test apart from some others that actually have slightly higher win rates. We are also focused on the 9-month back-test: 
       
      NFLX: Long 40 Delta Call   % Wins: 100%   Wins: 3   Losses: 0   % Return:  131% 
      Tap Here to See the Back-test
      We can see that Netflix has a bit of streak to it right now with three consecutive pre-earnings one-week long call back-tests showing wins, with an average return of 40%. 

      WHAT HAPPENED 
      Bull markets tend to create optimism, whether it's deserved or not. With the recent history of outperformance of the other FAANG stocks and nice winning streak, this gets twice the attention and is worth noting well ahead of the next event. To see how to test this for any stock we welcome you to watch this quick demonstration video: 
      Tap Here to See the Tools at Work 

      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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