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Option Trading: Buy or Sell Straddles in Alphabet Inc (NASDAQ:GOOGL)




Alphabet Inc (NASDAQ:GOOGL) : Trading Straddles

Date Published:

OPENING
As we look at Alphabet Inc we note that deciding whether to buy or sell options (in this case a straddle) is probably the most important question when it comes to option trading. But a cursory analysis of a short straddle will miss the fine points required -- especially surrounding earnings.

There's a broader question we are looking to answer -- has owning options or selling options been the winner in Alphabet Inc (NASDAQ:GOOGL) .


Option trading isn't about luck -- this three minute video will change your trading life forever: Option Trading and Truth


STORY
There's lot less luck involved in successful option trading than some people have come to know. We'll get specific with short straddles on GOOGL. Let's look at a three-year back-test of a short straddle strategy with these quick guidelines:

* Test monthly options (roll the trade every 30-days).
* Avoid earnings.
* Examine the at the money straddles.
* Test a short straddle looking back at three-years of data.

We want to introduce how easy this is with the right tools but also how important it is to make sure you use them. Just tap the appropriate settings.



And now the findings.

RESULTS
If we did this short straddle in Alphabet Inc (NASDAQ:GOOGL) over the last three-years but always skipped earnings we get these findings:

short 50 Delta Straddle
* Trade Frequency: 30 Days
* Back-test length: three-years
* Always Avoid Earnings

Gross Gain: $65,390
Gross Loss: -$53,685
Wins: 25 Losses: 16

Short Straddle Return:  20.4

Selling a straddle every 30-days in GOOGL has been a pretty substantial winner over the last three-years returning  20.4%. Even better, the strategy has outperformed the short straddle that was held during earnings.

GOING FURTHER WITH ALPHABET INC
That first step of analyzing a short straddle while avoiding earnings is nice -- but let's go deeper.

Let's look at the same analysis, but we will only look at earnings. Specifically, we will short the straddle two-days before earnings, then close the option position two-days after earnings.



Here are those results for the same short straddle:

short 50 Delta Straddle
* Trade Frequency: 30 Days
* Back-test length: three-years
* Only Trade Earnings

Gross Gain: $20,745
Gross Loss: -$16,865
Wins: 9 Losses: 4

Short Straddle Return:  7.2

While Selling an uncovered straddle in Alphabet Inc during earnings did prove to be a winner, more importantly, it returned less than the same short straddle that avoided earnings. But, there's a bigger picture here.

Having historical analysis in hand before option trading maps the decision process about what to trade, when to trade, and even if the trade is worth it at all. Now let's go beyond Alphabet Inc and trading short straddles to something that makes a difference in our trading lives.