Costco Wholesale Corporation, COST, earnings, options, volatility, iron condor
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LEDE
As the next earnings cycle approaches, we have looked at several trades that jump on patterned momentum ahead of earnings with long calls. Now it's time to look at a hedge for that long volatility / long delta type of trade.
This is a slightly advanced option trade that starts two calendar days after Costco Wholesale Corporation (NASDAQ:COST) earnings and lasts for the 19 calendar days to follow, that has been a winner for the last 2 years with 7 wins and 0 losses.
Costco Wholesale Corporation (NASDAQ:COST) Earnings
For Costco Wholesale Corporation, 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:
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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:
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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.
DISCOVERY
We found this trade using the TradeMachine Pro scanner. First we looked at the Nasdaq 100 companies, Post-Earnings back-tests, and the "21 days short iron condor."
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Then we sorted by earnings date, and found COST:
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RESULTS
If we sold this 35/15 delta iron condor in Costco Wholesale Corporation (NASDAQ:COST) 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 95.4% return, testing this over the last 11 earnings dates in Costco Wholesale Corporation. That's a total of just 209 days (19 days for each earnings date, over 11 earnings dates). That's a annualized rate of 167%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 9 times and lost 2 times, for a 82% win-rate.
Setting Expectations
While this strategy had an overall return of 95.4%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 11.18% over 19-days.
➡ The average percent return per winning trade was 20.94% over 19-days.
➡ The average percent return per losing trade was -32.76% over 19-days.
MORE TIME PERIODS
Then we looked more recently, at the last year:
Tap Here to See the Back-test
➡ The average percent return per trade was 25% 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.
The Volatility Option Trade After Earnings in Costco Wholesale Corporation
Costco Wholesale Corporation (NASDAQ:COST) : The Volatility Option Trade After Earnings
Date Published: 2017-09-12LEDE
As the next earnings cycle approaches, we have looked at several trades that jump on patterned momentum ahead of earnings with long calls. Now it's time to look at a hedge for that long volatility / long delta type of trade.
This is a slightly advanced option trade that starts two calendar days after Costco Wholesale Corporation (NASDAQ:COST) earnings and lasts for the 19 calendar days to follow, that has been a winner for the last 2 years with 7 wins and 0 losses.
Costco Wholesale Corporation (NASDAQ:COST) Earnings
For Costco Wholesale Corporation, 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 long option is either up or down 40% relative to the open price. If it was, the trade was closed.
DISCOVERY
We found this trade using the TradeMachine Pro scanner. First we looked at the Nasdaq 100 companies, Post-Earnings back-tests, and the "21 days short iron condor."
Then we sorted by earnings date, and found COST:
RESULTS
If we sold this 35/15 delta iron condor in Costco Wholesale Corporation (NASDAQ:COST) over the last three-years but only held it after earnings we get these results:
| COST: Short 35 Delta / 15 Delta Iron Condor |
|||
| % Wins: | 82% | ||
| Wins: 9 | Losses: 2 | ||
| % Return: | 95.4% | ||
Tap Here to See the Back-test
We see a 95.4% return, testing this over the last 11 earnings dates in Costco Wholesale Corporation. That's a total of just 209 days (19 days for each earnings date, over 11 earnings dates). That's a annualized rate of 167%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 9 times and lost 2 times, for a 82% win-rate.
Setting Expectations
While this strategy had an overall return of 95.4%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 11.18% over 19-days.
➡ The average percent return per winning trade was 20.94% over 19-days.
➡ The average percent return per losing trade was -32.76% over 19-days.
MORE TIME PERIODS
Then we looked more recently, at the last year:
| COST: Short 35 Delta / 15 Delta Iron Condor |
|||
| % Wins: | 100% | ||
| Wins: 4 | Losses: 0 | ||
| % Return: | 95.1% | ||
Tap Here to See the Back-test
➡ The average percent return per trade was 25% 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.