CMLviz.com
SPX
2,616.10
+5.80 (+0.22%)
+0.38%
-0.28%
VIX
19.04
+0.44 (+2.37%)

Apple Inc

NASDAQ:AAPL   4:00PM EDT
154.94
+1.57 (+1.03%)

People also watch


Avoid Bear Market Risk: The Secret to Option Trading Before Earnings in Amazon.com Inc



Amazon.com Inc (NASDAQ:AMZN) : Avoid Bear Market Risk: The Secret to Option Trading Before Earnings

Date Published:

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.


Preface
With the market's direction becoming tenuous, we can explore option trading opportunities in Amazon.com Inc (NASDAQ:AMZN) that do not rely on stock direction. It turns out, over the long-run, for stocks with certain tendencies like Amazon.com Inc, there is a clever way to trade market anxiety or market optimism before earnings announcements with options.



The Trade Before Earnings
What a trader wants to do is to see the results of buying an at the money straddle a few days before earnings, and then sell that straddle just before earnings.

This trade is not a panacea, which is to say, we have to test it, stock by stock, to see when and why it worked. We start with Amazon.com Inc.

Here is the setup:



We are testing opening the position 7 calendar days before earnings and then closing the position 1 day before earnings. This is not making any earnings bet. This is not making any stock direction bet.

Once we apply that simple rule to our back-test, we run it on an at-the-money straddle:

Returns
If we did this long at-the-money (also called '50-delta') straddle in Amazon.com Inc (NASDAQ:AMZN) over the last three-years but only held it before earnings we get these results:

AMZN
Long At-the-Money Straddle

% Wins: 50.00%
Wins: 6 Losses: 6
% Return:  24.9% 

Tap Here to See the Back-test

The mechanics of the TradeMachine™ are that it uses end of day prices for every back-test entry and exit (every trigger).



Track this trade idea. Get alerted for ticker `AMZN`  7 days before earnings

Ticker

 
Email

 
Phone
(optional for text alerts)
 

 

A free service courtesy of cmlviz.com


We see a 24.9% return, testing this over the last 12 earnings dates in Amazon.com Inc. That's a total of just 60 days (5 days for each earnings date, over 12 earnings dates). That's an annualized rate of 151.5%.

We can also see that this strategy hasn't been a winner all the time, rather it has won 6 times and lost 6 times, for a 50% win-rate and again, that 24.9% return in less than two-full months of trading.


( ! ) Warning: include(mid_article_include.php): failed to open stream: No such file or directory in C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20180204_avoid-bear-market-risk-the-secret-to-option-trading-before-earnings-in-amazon-com-inc.html on line 146
Call Stack
#TimeMemoryFunctionLocation
10.0010276784{main}( )..\research.php:0
20.6700724256include_once( 'C:\wamp\www\www.cmlviz.com\cmld3b\news_db.php' )..\research.php:292
30.6720739304include( 'C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20180204_avoid-bear-market-risk-the-secret-to-option-trading-before-earnings-in-amazon-com-inc.html' )..\news_db.php:77

( ! ) Warning: include(): Failed opening 'mid_article_include.php' for inclusion (include_path='C:/wamp/www/www.cmlviz.com/cmld3b/') in C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20180204_avoid-bear-market-risk-the-secret-to-option-trading-before-earnings-in-amazon-com-inc.html on line 146
Call Stack
#TimeMemoryFunctionLocation
10.0010276784{main}( )..\research.php:0
20.6700724256include_once( 'C:\wamp\www\www.cmlviz.com\cmld3b\news_db.php' )..\research.php:292
30.6720739304include( 'C:\wamp\www\www.cmlviz.com\cmld3b\news.news\cml_news_20180204_avoid-bear-market-risk-the-secret-to-option-trading-before-earnings-in-amazon-com-inc.html' )..\news_db.php:77

Setting Expectations
While this strategy has an overall return of 24.9%, the trade details keep us in bounds with expectations:
      The average percent return per trade was 3.5%.



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.

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.