Date Published: 2017-02-21
FINDING EDGE IN VISA INC (NYSE:V)
Visa Inc (NYSE:V) stock is up 30% over the last 2-years with the majority of that rise coming in just the last few months -- but there has been edge in the option market. Here's a quick stock chart:
But, there's an option strategy that has a nice risk protection in it that has turned that 30% stock return in two-years into 136% in just the last 6-months.
A 'delta' of an option is a proxy for a probability. So, a 40 delta put should end up in the money 40% of the time, or, selling it should end up a winner 60% of the time. But, selling a naked put can be very risky.
Let's adjust, and instead of selling naked puts, let's sell a put spread, which has a well defined maximum loss. Here's how that strategy has done over the last year, trading weekly options.
There are two critical pieces of information here:
* First, we see a 149% return from this risk protected strategy.
* Second, we see 23 winning trades and 4 losing trades for a 85.2% win-rate.
That's how edge is measured in the option market, and for Visa, we have seen it in the last year. But, that edge does not appear to be a random event. Here are the win-rates for that exact same short put spread over the last three-years and two-years, trading every single week:
Remember, if we're above 60% win rates with positive returns, we have edge, and we have serious edge here.
Here is how that short put spread, every week, has done in Visa over the last 6-months:
That's a 136% return while the stock is up just 8%. And that return is driven by a 85.7% win-rate versus a market pricing of 60% (this was a test of selling the 40-delta options).
The real analysis goes beyond just Visa (NYSE:V)- and into the SPY, VXX and other individual stocks, like AAPL, AMZN, FB the mega banks and even NFLX or even through the lower risk industries with companies like SBUX and NKE.
The key here is to find edge, optimize it -- in this case by putting in a stop loss -- and then to see if it's been sustained through time. For Visa Inc (NYSE:V) it has, and that makes for a powerful result.
We've just seen an explicit demonstration of the fact that there's a lot less 'luck' and a lot more planning in successful option trading than many people realize. Here is a quick 4-minute demonstration video that will change your option trading life forever: Tap here to see the Trade Machine in action
Thanks for reading, friends.
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.