PREFACE
It's one of the great questions when trading options -- how do you trade earnings, or as importantly, should you trade earnings at all? It turns out that with Alphabet Inc (NASDAQ:GOOGL), there is an option strategy that has out-performed the stock by more than 200% when employed during earnings.
This is the information that the top 0.1% have and now it's time for us all to see it.
STORY
By definition trading options during earnings is very risky. But, once we step into that world, in turns out that there is a lot less 'luck' involved in successful option trading than many people have come to understand.
We can get specific with long earnings strangles for GOOGL in this dossier. Let's look at a three-year back-test of a long 20 strangle only held during earnings. Here are the rules we followed:
* Test monthly options.
* Only hold the position during earnings. Specifically, we test initiating the position two-days before the earnings event, then hold through earnings, and then close two-days after.
* Test the out of the money strangle -- specifically the 20 delta strangle.
* Test the earnings strangle looking back at two-years of history.
More than all the numbers, we simply want to walk down a path that demonstrates that it is actually quite easy to optimize our trades with the right tools. In the set up image below we just tap the rules we want to test.
Next we glance at the returns.
RETURNS
If we did this 20 delta long strangle in Alphabet Inc (NASDAQ:GOOGL) over the last two-years but only held it during earnings we get these results:
Owning the earnings options returned 277% over the last two-years.
While the stock has been up 52.5% in the same time, this clever strategy has beaten the stock by a full 220%, and again, we're looking at just a matter of days of holding period for the options and a full two-years for the stock.
There are these rare gems where the option market has under-priced the opportunity. Apple is in fact another one of these.
TRADING TRUTHS
To see how to do this for any stock, for any strategy, with just the click of a few buttons, we welcome you to watch this 4-minute demonstration video:
Tap Here to See the Tools at Work
Thanks for reading.
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