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Successful Earnings Option Trading: Atlanticus Holdings Corporation (NASDAQ:ATLC)

Atlanticus Holdings Corporation, ATLC, earnings, short put
Knowledge-is-Power

Atlanticus Holdings Corporation (NASDAQ:ATLC) : Option Trading Puts for Earnings

Date Published:

PREFACE
As we look at Atlanticus Holdings Corporation we note that a short put is one of the most common implementations of an option strategy, but the analysis completed when employing the short put often times lacks the necessary rigor especially surrounding earnings. This is a risky strategy, but there is a clever way to reduce risk.



Option trading isn't about luck -- this four minute video will change your trading life forever: Option Trading and Truth
With relative ease, we can go much further -- to identify the risks we want to take, and those that we don't in order to optimize our results. This is one of those cases.

STORY
There's actually a lot less 'luck' involved in successful option trading than many people realize. We'll get specific with short puts on ATLC. Let's look at a two-year back-test of a short put strategy with these quick guidelines:

* We'll test monthly options (roll the trade every 30-days).
* We will avoid earnings.
* We will examine an out of the money put -- in this case, 30 delta.
* We will test this short put looking back at two-years of history.

What we want to impress upon you is how easy this is with the right tools. Just tap the appropriate settings.

Welcome

Now we can peruse the results.

RESULTS
If we did this 30 delta short put in Atlanticus Holdings Corporation (NASDAQ:ATLC) over the last two-years but always skipped earnings we get these findings:

short 30 Delta Put
* Trade Frequency: 30 Days
* Back-test length: two-years
* Always Avoid Earnings

Gross Gain: $993
Gross Loss: -$878
Wins: 10 Losses: 8

Short Put Return:  10
Stock Return:  -2.8

Option Out-performance  12.8

First we note that the short put strategy actually produced a higher return than the stock 10.0% versus -2.8% or a 12.8% out-performance.

Selling an uncovered put every 30-days in ATLC has been a modest winner over the last two-years returning  10%. But, as modest as the gains have been, this clever use of avoiding earnings has outperformed the short put that was held during earnings. Let's turn to that piece, now.

GOING FURTHER WITH ATLANTICUS HOLDINGS CORPORATION
Just doing our first step, which was to evaluate the short put while avoiding earnings is clever -- certainly an analysis that gets us ahead of most casual option traders. But let's take the analysis even further.

This time, we will do the exact same back-test, but we will only look at earnings. Specifically, we will short the put two-days before earnings, let earnings happen, then close the option position two-days after earnings.

short put setup

Here are those results for the same 30 delta short put:

short 30 Delta Put
* Trade Frequency: 30 Days
* Back-test length: two-years
* OnlyTrade Earnings

Gross Gain: $13
Gross Loss: -$500
Wins: 2 Losses: 5

Short Put Return:  -85.7

While Selling an uncovered put in Atlanticus Holdings Corporation was modestly positive, taking on extra risk by actually holding a short put position during earnings did worse. Yep, taking on more risk yielded worse returns. There's actually a bigger picture here. Let's turn to that piece, now.

TRADING TRUTHS
Moving through the analysis on Atlanticus Holdings Corporation (NASDAQ:ATLC) has done more than show us returns, it has revealed that the concept of expertise in options has been made made overly complex. The point is simple: having the knowledge before placing a trade shapes the thought process about what to trade, when to trade it and even if the trade is worth it at all. Here's how all this works in real-life, beyond Atlanticus Holdings Corporation and short puts.