For Option Traders, The Real Opportunity in Tesla Inc is After Earnings
Date Published: 2017-05-03
Written by Ophir Gottlieb
Tesla Inc, with all of its stock volatility and uncertainty, follows a beautiful pattern after earnings are released and it makes for an opportunity with options. But, we are waiting for the volatile stock move after earnings to happen, and in that next 30-days of equilibrium, we find a gem.
TESLA INC AFTER EARNINGS
We can examine this, objectively, with a custom back-test. Here is our custom earnings set-up:
Said plainly, we will open our position one day after earnings, and close it 30 days later. We after testing using the 30-day options (monthly option) and we are simply selling an out of the money put spread. To be clear, this is bet that, after the big earnings move, when the price finds an equilibrium, for the 30-days following, a bet that the sock "won't go down a lot," has been a big winner.
Here are the results over the last three-years:
While that 95.3% return looks tasty, it's actually better than it seems. We treat Tesla's quarterly sales press releases as earnings events too, as any truly knowledgeable trader would. In total, there were 23 earnings and quarterly sales releases in this 3-year period, so that would be 23 trades.
That's 23 trades, each for one month, for a total holding period of 23 months. We see 15 winning trades and 8 losing trades. This isn't a panacea -- it's real analysis -- where we look for edge, and repeating patterns. Where risk taken is less than the reward received.
It's a fair question to ask if this strategy actually works over different time periods. Here are the results over the last two-years:
Now we see a 61.2% return over the last sixteen earnings releases. The short-put spread was a winner 12-times, and it was a loser 4-times. Again, the trade was a winner the majority of the time, not all of the time. But this is a strategy, not an one-time gamble.
Finally, we examine the six-months:
That's a 33.3% return over the last three earnings releases, and all three trades were winners, while not taking any risk of the actual earnings release.
There are patterns to stock behaviors before and after earnings and those patterns reveal opportunities in the option market, without taking the actual risk of earnings. There is another approach to Tesla Inc before earnings, that we discussed a few days ago.
This is how people profit from the option market -- it's preparation, not luck. Take an idea, test it over several periods, note the robustness of the results, and apply lessons learned.
To see how to do this for any stock and for any strategy with just the click of a few buttons, we welcome you to watch this quick demonstration video:
Tap Here to See the Tools at Work
Thanks for reading.
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 author has no position in Tesla Inc (NASDAQ:TSLA) as of this writing.
Back-test Link (custom earnings settings still required)