GoPro Inc. - Ordinary Shares - Class A
XNAS:GPRO
1.59
+0.02
(+1.27%)
7:58:17 PM EDT: $1.61 +0.02 (+1.24%)
GoPro Inc, GPRO, earnings, options, volatility, secret
Preface
There is a way to trade options right before earnings announcements in GoPro Inc (NASDAQ:GPRO), and really many stocks, that benefits from the rising implied volatility but avoids the risk into the actual earnings release and also avoids any kind of stock direction risk.
STORY
Everyone knows that the day of an earnings announcement is a risky event for a stock. This can be explicitly seen in the option market, where the implied volatility (the expected stock move) rises into the earnings event.
The question every option trader, whether professional or amateur, has long asked is if there is a way to profit from this known volatility rise. It turns out, that over the long-run, for stocks with certain tendencies like GoPro Inc (NASDAQ:GPRO) the answer is actually, yes.
THE IDEA
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. The goal, is two-fold: (i) to benefit from that known implied volatility rise, and (ii) to own the straddle for a very short period of time when the stock might move 'a lot,' but taking no earnings bets.
If either of those two phenomena occur, there's a very good chance this wins, if neither occur, the amount risked is normally quite small. Here is the setup:
We are testing opening the position 6 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 GoPro Inc (NASDAQ:GPRO) over the last three-years but only held it before earnings we get these results:
(Here is the back-test link.)
We see a 21% return, testing this over the last 13 earnings dates in GoPro Inc. That's a total of just 65 days (5 days for each earnings date, over 13 earnings dates). That's a annualized rate of 118%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 5 times and lost 8 times, for a 38% win-rate and again, that 21% return in less than two-full months of trading.
This approach has also been a winner over the last two-years -- in fact, it has been even better than the last three-years.
MORE TO IT THAN MEETS THE EYE
While this strategy is benefiting from the implied volatility rise into earnings, what it's really doing is far more intelligent.
The option prices for the at-the-money straddle will show very little time decay over this 5-day period, so what this strategy really does is buy "five days" of potential stock movement with what is actually fairly small downside risk.
WHAT HAPPENED
This is it -- this is how people profit from the option market. A few clicks of preparation makes all the difference in the world.
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.
Back-test Link
The Wonderful Secret to Options Trading Before Earnings in GoPro Inc (NASDAQ:GPRO)
GoPro Inc (NASDAQ:GPRO) : The Wonderful Secret to Options Trading Before Earnings
Date Published: 2017-05-10Author: Ophir Gottlieb
Preface
There is a way to trade options right before earnings announcements in GoPro Inc (NASDAQ:GPRO), and really many stocks, that benefits from the rising implied volatility but avoids the risk into the actual earnings release and also avoids any kind of stock direction risk.
STORY
Everyone knows that the day of an earnings announcement is a risky event for a stock. This can be explicitly seen in the option market, where the implied volatility (the expected stock move) rises into the earnings event.
The question every option trader, whether professional or amateur, has long asked is if there is a way to profit from this known volatility rise. It turns out, that over the long-run, for stocks with certain tendencies like GoPro Inc (NASDAQ:GPRO) the answer is actually, yes.
Yes, there is a systematic way to trade this repeating phenomenon, without making a bet on earnings or stock direction.
THE IDEA
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. The goal, is two-fold: (i) to benefit from that known implied volatility rise, and (ii) to own the straddle for a very short period of time when the stock might move 'a lot,' but taking no earnings bets.
If either of those two phenomena occur, there's a very good chance this wins, if neither occur, the amount risked is normally quite small. Here is the setup:
We are testing opening the position 6 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 GoPro Inc (NASDAQ:GPRO) over the last three-years but only held it before earnings we get these results:
| Long At-the-Money Straddle | |||
| * Monthly Options | |||
| * Back-test length: three-years | |||
| * Open 6-days Before Earnings | |||
| * Close 1-day Before Earnings | |||
| * Holding Period: 5-Days per Earnings | |||
| Winning Trades: | 5 | ||
| Losing Trades: | 8 | ||
| Pre-Earnings Straddle Return: | 21% | ||
| Annualized Return: | 118% | ||
(Here is the back-test link.)
We see a 21% return, testing this over the last 13 earnings dates in GoPro Inc. That's a total of just 65 days (5 days for each earnings date, over 13 earnings dates). That's a annualized rate of 118%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 5 times and lost 8 times, for a 38% win-rate and again, that 21% return in less than two-full months of trading.
This approach has also been a winner over the last two-years -- in fact, it has been even better than the last three-years.
| Long At-the-Money Straddle | |||
| * Monthly Options | |||
| * Back-test length: two-years | |||
| * Open 6-days Before Earnings | |||
| * Close 1-day Before Earnings | |||
| * Holding Period: 5-Days per Earnings | |||
| Winning Trades: | 4 | ||
| Losing Trades: | 4 | ||
| Pre-Earnings Straddle Return: | 43% | ||
| Annualized Return: | 326% | ||
MORE TO IT THAN MEETS THE EYE
While this strategy is benefiting from the implied volatility rise into earnings, what it's really doing is far more intelligent.
The option prices for the at-the-money straddle will show very little time decay over this 5-day period, so what this strategy really does is buy "five days" of potential stock movement with what is actually fairly small downside risk.
WHAT HAPPENED
This is it -- this is how people profit from the option market. A few clicks of preparation makes all the difference in the world.
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.
Back-test Link