news.cmlviz.com
menu
share

Intelligent Options Trading: Right After Earnings in Republic Services Inc



Republic Services Inc (NYSE:RSG) : Intelligent Options Trading: Right After Earnings

Date Published:

LEDE
This is a simple option trade that starts two-days after Republic Services Inc (NYSE:RSG) earnings and lasts for the one month to follow, that has been a winner for 3 straight years.





Republic Services Inc (NYSE:RSG) 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 Republic Services Inc, 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 Republic Services Inc (NYSE:RSG) 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: 12
Losing Trades: 0
Post-Earnings Short Put Spread Return:  58.4
Annualized Return:  63

We see a 58.4% return, testing this over the last 12 earnings dates in Republic Services Inc. That's a total of just 336 days (28 days for each earnings date, over 12 earnings dates).

This is not a magic bullet, rather it's a strategy. In the short-term it hasn't seen any losses, but more importantly, whether or not it loses on any given earnings run-up, the 58.4%  return in less than two-full months of trading is based on an idea of consistency. It will lose some times, but over the long-run, it has won.



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 Republic Services Inc.

What we're after with this approach is identifying companies that make their large stock move the day after earnings -- whether that's up or down -- and after that, find a sense of equilibrium in the stock price for the next month. This is what we find in Republic Services Inc (NYSE:RSG) .



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.