Regeneron Pharmaceuticals, Inc.
NASDAQ:REGN 4:00:00 PM EDT
890.68
-15.86
(-1.75%)
4:12:25 PM EDT: $886.00 -4.68 (-0.53%)
Regeneron Pharmaceuticals Inc, REGN, earnings, options, volatility, secret
Preface
Regeneron Pharmaceuticals Inc stock has been as high as $605 and as low as $325 over the last two-years. The stock moves abruptly in short-time periods and earnings turn into volatile events.
Clever option trading right before earnings announcements in Regeneron Pharmaceuticals Inc 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 has been a monster winner over the last 2-years.
This approach has returned 26.5% with a total holding period of just 40 days, or a annualized rate of 242%. Now that's worth looking into.
STORY
Everyone knows that the day of an earnings announcement is a risky event for a stock. The question 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 Regeneron Pharmaceuticals Inc (NASDAQ:REGN) the answer is actually, yes.
THE IDEA
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 Regeneron Pharmaceuticals Inc (NASDAQ:REGN) over the last two-years but only held it before earnings we get these results:
(Here is the backtest link.)
We see a 26.5% return, testing this over the last 8 earnings dates in Regeneron Pharmaceuticals Inc. That's a total of just 40 days (5 days for each earnings date, over 8 earnings dates). That's a annualized rate of 242%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 5 times and lost 3 times, for a 63% win-rate. As important as the win-rate is that the average win was $1,780 and the average loss was $847 (using a 5-lot straddle).
When a strategy wins more often than it loses, and the average of a winning trade is actually larger in dollars than the average losing trade, you end up with these outsized gains.
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.
The Wonderful Secret to Options Trading Before Earnings in Regeneron Pharmaceuticals Inc (NASDAQ:REGN)
Regeneron Pharmaceuticals Inc (NASDAQ:REGN) : The Wonderful Secret to Options Trading Before Earnings
Date Published: 2017-05-11Preface
Regeneron Pharmaceuticals Inc stock has been as high as $605 and as low as $325 over the last two-years. The stock moves abruptly in short-time periods and earnings turn into volatile events.
Clever option trading right before earnings announcements in Regeneron Pharmaceuticals Inc 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 has been a monster winner over the last 2-years.
This approach has returned 26.5% with a total holding period of just 40 days, or a annualized rate of 242%. Now that's worth looking into.
STORY
Everyone knows that the day of an earnings announcement is a risky event for a stock. The question 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 Regeneron Pharmaceuticals Inc (NASDAQ:REGN) the answer is actually, yes.
THE IDEA
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 Regeneron Pharmaceuticals Inc (NASDAQ:REGN) over the last two-years but only held it before earnings we get these results:
| 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: | 5 | ||
| Losing Trades: | 3 | ||
| Pre-Earnings Straddle Return: | 26.5% | ||
| Annualized Return: | 242% | ||
(Here is the backtest link.)
We see a 26.5% return, testing this over the last 8 earnings dates in Regeneron Pharmaceuticals Inc. That's a total of just 40 days (5 days for each earnings date, over 8 earnings dates). That's a annualized rate of 242%.
We can also see that this strategy hasn't been a winner all the time, rather it has won 5 times and lost 3 times, for a 63% win-rate. As important as the win-rate is that the average win was $1,780 and the average loss was $847 (using a 5-lot straddle).
When a strategy wins more often than it loses, and the average of a winning trade is actually larger in dollars than the average losing trade, you end up with these outsized gains.
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.