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Successful Earnings Option Trading: ZIOPHARM Oncology Inc (NASDAQ:ZIOP)

ZIOPHARM Oncology Inc, ZIOP, earnings, short put
Knowledge-is-Power

ZIOPHARM Oncology Inc (NASDAQ:ZIOP) : Option Trading Short Puts and Earnings

Date Published:

PREFACE
As we look at ZIOPHARM Oncology Inc 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 ZIOP. Let's look at a three-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 three-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 ZIOPHARM Oncology Inc (NASDAQ:ZIOP) over the last three-years but always skipped earnings we get these findings:

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

Gross Gain: $1,289
Gross Loss: -$607
Wins: 32 Losses: 8

Short Put Return:  1082.5
Stock Return:  80.6

Option Out-performance  1,001.9

First we note that the short put strategy actually produced a higher return than the stock 1,082.5% versus 80.6% or a 1,001.9% out-performance.

Selling a put every 30-days in ZIOP has been a pretty substantial winner over the last three-years returning  1082.5%. Even better, the strategy has outperformed the short put that was held during earnings. Let's turn to that piece, now.

GOING FURTHER WITH ZIOPHARM ONCOLOGY INC
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: three-years
* OnlyTrade Earnings

Gross Gain: $263
Gross Loss: -$107
Wins: 10 Losses: 2

Short Put Return:  82.6

While Selling an uncovered put in ZIOPHARM Oncology Inc during earnings did prove to be a winner, more importantly, it returned less than the same short put that avoided earnings. While this clever use of avoiding earnings has outperformed the short put that was held during earnings, there's a bigger picture here. Let's turn to that piece, now.

TRADING TRUTHS
Moving through the analysis on ZIOPHARM Oncology Inc (NASDAQ:ZIOP) 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 ZIOPHARM Oncology Inc and short puts.