CBOE Global Markets Inc

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The Option Trade Right After Earnings in CBOE Holdings Inc



CBOE Holdings Inc (NASDAQ:CBOE) : Right After Earnings, The Intelligent Options Trade

Date Published:

LEDE
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:



Rules
* Open short put spread 2-days after earnings
* Close short put spread 29 days later
* Use the 30-day options

RETURNS
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

% Wins: 100%
Wins: 11 Losses: 0
% Return:  99.6% 
% Annualized:  118% 


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.

Setting Expectations
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) .

WHAT HAPPENED
This is it -- this is how people profit from the option market -- it's not about guessing; ever.

To see how to find the best strategy 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.