Apple Inc (NSDQ:AAPL) : Right After Earnings, The Intelligent Options TradeDate Published: 2018-08-17
DisclaimerThe results here are provided for general informational purposes, as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
LEDEThis is a simple option trade that starts two-days after Apple Inc (NSDQ:AAPL) earnings and lasts for the one month to follow, that has been a winner for 3 straight years.
Apple Inc (NSDQ:AAPL) 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 Apple Inc, irrespective of whether the earnings move was up or down, if we waited two calendar 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
If we sold this 30/10 delta out-of-the-money put spread in Apple Inc (NSDQ:AAPL) over the last three-years but only held it after earnings we get these results:
We see a 137.8% return, testing this over the last 12 earnings dates in Apple 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 post earnings move, the 137.8% return is based on an idea of consistency. It will lose some times, but over the long-run, it has won.
Setting ExpectationsWhile this strategy had an overall return of 137.8%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 12.57% in just 27-calendar days.
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 Apple Inc.
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.