GATX Corporation (NYSE:GATX) : Intelligent Options Trading: Right After EarningsDate Published: 2017-05-19
This is a simple option trade that starts two-days after GATX Corporation (NYSE:GATX) earnings and lasts for the one month to follow, that has been a winner for 3 straight years.
GATX Corporation (NYSE:GATX) Earnings
While the mainstream media likes to focus on the actual earnings move for a stock, that's the distraction when it comes to the option market.
For GATX Corporation, irrespective of whether the earnings move was up or down, if we waited two-days after the stock move, and then sold a one-month out of the money put spread, the results were simply staggering. We use two-days to allow the stock to fully reach equilibrium post earnings.
We can examine this intelligent approach, objectively, with a custom option back-test. Here is our earnings set-up:
* Open short put spread 2-days after earnings
* Close short put spread 29 days later
* Use the 30-day options
If we sold this 30/10 delta out-of-the-money put spread in GATX Corporation (NYSE:GATX) over the last three-years but only held it after earnings we get these results:
We see a 26.9% return, testing this over the last 12 earnings dates in GATX Corporation. That's a total of just 336 days (28 days for each earnings date, over 12 earnings dates).
We can also see that this strategy hasn't been a winner all the time, rather it has won 9 times and lost 3 times, for a 75% win-rate.
MORE TO IT THAN MEETS THE EYE
While a short put spread is a strategy that gains profits if the underlying stock "doesn't go down a lot," there is more to this with GATX Corporation.
This strategy is not a silver bullet, it does not take on the risk of earnings, and while it's slightly bullish, it really isn't a stock direction investment either. In many ways, earnings results are just a coin flip -- and we are not interested in flipping coins with option strategies.
We can see that this idea has been a winner more times than it has been a loser -- a 75% win-rate. It's that positive win-rate that has created that large 29% annualized return.
Traders that have a plan guess less. This is how people profit from the option market. Take a reasonable idea or hypothesis, test it, and apply lessons learned.