Target Corporation, TGT, earnings, put, delta, options, intelligent
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Disclaimer
The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
LEDE
While we often times look at bullish momentum back-tests, today we look at a simple option trade that starts two-days after Target Corporation (NYSE:TGT) earnings and lasts for the one month to follow, that has been a winner for 3 straight years without a loss.
According to our data provider, Wall Street Horizon, Target has earnings due out 11-15-2017, before the market opens. Two-days after that would be 11-17-2017.
Target Corporation (NYSE:TGT) 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 Target Corporation, 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 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:
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Rules
* Open short put spread 2-days after earnings
* Close short put spread 29 days later
* Use the 30 delta and 10 delta puts
* Use the 30-day options
RETURNS
If we sold this 30/10 delta out-of-the-money put spread in Target Corporation (NYSE:TGT) 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 128% return, testing this over the last 12 earnings dates in Target Corporation. That's a total of just 336 days (28 days for each earnings date, over 12 earnings dates). In that same time frame (3-years), Target stock is up 0.9% -- so essentially unchanged.
Over the last year, we see these results:
Tap Here to See the Back-test
Setting Expectations
While this strategy had an overall return of 128% over the last 3-years, which sounds fantastical, but the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 12.4% in just 27-calendar days over the last three-years.
➡ The average percent return per trade was 13.4% in just 27-calendar days over the last year.
DISCOVERY
We found this back-test using the Trade Machine Pro scanner, using the S&P 500 as our group and the post-earnings short put spread as our strategy.
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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 Target Corporation.
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 Target Corporation (NYSE:TGT) .
We can see that this idea has been a winner -- a 100% win-rate. It's that positive win-rate that has created that 128% return, but a 1005 win rate is not a guarantee -- there are no guarantees in trading.
RISK NOTE
Irrespective of how well this back-test has done in the past, it's always worth using common sense. In this case, it's a reasonable check to see how Target stock responds to earnings, and if it's a large move, perhaps this short volatility and slightly bullish back-test isn't as compelling.
WHAT HAPPENED
Traders that have a plan guess less. This is how people profit from the option market. Take a reasonable idea or hypothesis, test it, and apply lessons learned.
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.
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.
Intelligent Options Trading: Right After Earnings in Target Corporation
Target Corporation (NYSE:TGT) : Intelligent Options Trading: Right After Earnings
Date Published: 2017-11-10Disclaimer
The results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
LEDE
While we often times look at bullish momentum back-tests, today we look at a simple option trade that starts two-days after Target Corporation (NYSE:TGT) earnings and lasts for the one month to follow, that has been a winner for 3 straight years without a loss.
According to our data provider, Wall Street Horizon, Target has earnings due out 11-15-2017, before the market opens. Two-days after that would be 11-17-2017.
Target Corporation (NYSE:TGT) 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 Target Corporation, 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 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 delta and 10 delta puts
* Use the 30-day options
RETURNS
If we sold this 30/10 delta out-of-the-money put spread in Target Corporation (NYSE:TGT) over the last three-years but only held it after earnings we get these results:
| TGT: Short 30 Delta / 10 Delta Put Spread |
|||
| % Wins: | 100% | ||
| Wins: 12 | Losses: 0 | ||
| % Return: | 128% | ||
Tap Here to See the Back-test
We see a 128% return, testing this over the last 12 earnings dates in Target Corporation. That's a total of just 336 days (28 days for each earnings date, over 12 earnings dates). In that same time frame (3-years), Target stock is up 0.9% -- so essentially unchanged.
Over the last year, we see these results:
| TGT: Short 30 Delta / 10 Delta Put Spread |
|||
| % Wins: | 100% | ||
| Wins: 4 | Losses: 0 | ||
| % Return: | 46.4% | ||
Tap Here to See the Back-test
Setting Expectations
While this strategy had an overall return of 128% over the last 3-years, which sounds fantastical, but the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 12.4% in just 27-calendar days over the last three-years.
➡ The average percent return per trade was 13.4% in just 27-calendar days over the last year.
DISCOVERY
We found this back-test using the Trade Machine Pro scanner, using the S&P 500 as our group and the post-earnings short put spread as our strategy.
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 Target Corporation.
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 Target Corporation (NYSE:TGT) .
We can see that this idea has been a winner -- a 100% win-rate. It's that positive win-rate that has created that 128% return, but a 1005 win rate is not a guarantee -- there are no guarantees in trading.
RISK NOTE
Irrespective of how well this back-test has done in the past, it's always worth using common sense. In this case, it's a reasonable check to see how Target stock responds to earnings, and if it's a large move, perhaps this short volatility and slightly bullish back-test isn't as compelling.
WHAT HAPPENED
Traders that have a plan guess less. This is how people profit from the option market. Take a reasonable idea or hypothesis, test it, and apply lessons learned.
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.
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.