The Option Trade Right After Earnings in CBOE Holdings Inc
CBOE Holdings Inc (NASDAQ:CBOE) : Right After Earnings, The Intelligent Options Trade
This is a simple option trade that starts two-days after CBOE Holdings Inc (NASDAQ:CBOE) earnings and lasts for the one month to follow, that has been a winner for 3 straight years.
Note: CBOE just released earnings on Friday, August 4th, 2017 before the market opened. Two calendar days after earnings would fall on a Sunday, meaning that in order to replicate this back-test moving forward, this trade would open at the close of trading on Monday, August 7th.
CBOE Holdings Inc (NASDAQ:CBOE) 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 CBOE Holdings Inc, irrespective of whether the earnings move was up or down, if we waited two calendar days after the stock move, and then sold an one-month out of the money put spread, the results were simply staggering. We use two-days after earnings to allow the stock to fully reach equilibrium post earnings.
We can examine this intelligent approach, objectively, with a custom option back-test. Here is our earnings set-up:
* Open short put spread 2-days after earnings
* Close short put spread 29 days later
* Use the 30-day options
If we sold this 30/10 delta out-of-the-money put spread in CBOE Holdings Inc (NASDAQ:CBOE) over the last three-years but only held it after earnings we get these results:
CBOE: Short 30 Delta / 10 Delta Put Spread
We see a 99.6% return, testing this over the last 11 earnings dates in CBOE Holdings Inc. That's a total of just 308 days (28 days for each earnings date, over 11 earnings dates).
That's a annualized rate of 118%.
This is not a magic bullet, rather it's a strategy. In the short-term it hasn't seen any losses, but more importantly, whether or not it loses on any given earnings run-up, the 99.6% return is based on an idea of consistency. It will lose some times, but over the long-run, it has won.
While this strategy had an overall return of 99.6%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 9.79% in just 27-calendar days.
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 CBOE Holdings Inc.
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 CBOE Holdings Inc (NASDAQ:CBOE) .
This is it -- this is how people profit from the option market -- it's not about guessing; ever.
Past performance is not an indication of future results.
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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.