Apple Inc (NASDAQ:AAPL) : Powerful Short Put Spreads to Outperform EarningsDate Published: 2017-01-4
We find a very powerful outcome examining short put spreads for Apple Inc when we use a clever earnings risk management approach. This is the information that the top 0.1% have and now it's time for us all to see it.
With relative ease we can become experts -- to see the risks we want to take and see those that we want to avoid, which ultimately allows us to optimize our results. This is one of those cases.
There is a lot less 'luck' involved in successful option trading than many people have come to understand. We can get specific with short put spreads on AAPL in this dossier. Let's look at a two-year back-test of a short put spread strategy and use the following easy rules:
* Test monthly options, which means rolling the put spread every 30-days.
* Avoid holding a position during earnings.
* Study an out of the money put spread -- specifically the 30 delta / 10 delta spread.
* Test the put spread looking back at two-years of history.
More than all the numbers, we simply want to walk down a path that demonstrates that it is actually quite easy to optimize our trades with the right tools. In the set up image below we just tap the rules we want to test.
Next we glance at the returns.
If we did this 30 delta / 10 delta short put spread in Apple Inc (NASDAQ:AAPL) over the last two-years but always skipped earnings we get these results:
First we note that the short put spread strategy actually produced a higher return than the stock 34.5% versus 13.6% or a 20.9% out-performance.
Selling a put spread spread every 30-days in AAPL has been a pretty substantial winner over the last two-years returning Even better, the strategy has outperformed the short put spread that was held during earnings. Let's turn to that piece, now.
OPERATING FURTHER WITH APPLE INC
That initial move -- examining short put spreads while avoiding earnings is clever. It definitely gets us a study ahead of most casual option traders. But we can move our knowledge yet further.
The next move will implement the same back-test rules and deltas, but this time we will only test results during earnings. To be perfectly clear, we test the short put spread that is opened two-days before earnings, lets earnings occur, and then closes the option position two-days after earnings.
Here are those results for the same 30 delta / 10 delta short put spread:
Selling a put spread in Apple Inc during was not only a loser, more importantly, it returned less than the same short put spread that avoided earnings. While this clever use of avoiding earnings has outperformed the short put spread that was held during earnings, there's a bigger picture here. Let's turn to that piece, now.
For clarity we chart the stock returns, the short put spread (ps) strategy with earnings and the one that avoids earnings, below.
Apple Inc Stock
and Short Puts Spreads %
This approach on Apple Inc (NASDAQ:AAPL) goes way further than returns. What we have done is seen rather explicitly that the concept of expertise in options has been made overly complex. The concept here is straight forward: securing knowledge before entering an option position constructs a mind set about what to trade, when to trade it and even if the trade is worth it at all. Now we can see this practice taken further, beyond Apple Inc and put spreads.