news.cmlviz.com
menu
share

Intelligent Options Trading: Right After Earnings in GATX Corporation



GATX Corporation (NYSE:GATX) : Intelligent Options Trading: Right After Earnings

Date Published:

LEDE
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:



Rules
* Open short put spread 2-days after earnings
* Close short put spread 29 days later
* Use the 30-day options

RETURNS
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:

Intelligent Short Put Spread
* Monthly Options
* Back-test length: three-years
* Open 2-days After Earnings
* Close 29-days Later
* Holding Period: 28-Days per Earnings

Winning Trades: 9
Losing Trades: 3
Post-Earnings Short Put Spread Return:  26.9
Annualized Return:  29

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.

WHAT HAPPENED
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.