The Volatility Option Trade After Earnings in Adobe Systems August 30, 2017 - Capital Market Laboratories LEDE This is a slightly advanced option trade that starts two calendar days after Adobe Systems Incorporated (NASDAQ:ADBE) earnings and lasts for the 19 calendar days to follow, that has been a winner for the last 3 years. Adobe has earnings due out around September 19th, but that is not a confirmed date -- just be aware that the announcement is in the next few weeks. Adobe Systems Incorporated (NASDAQ:ADBE) Earnings While we have had tremendous success by recognizing the pre-earnings momentum pattern that has over taken this bull market, we do need to consider a broad portfolio of option investments -- and in this case we look at a back-test that is direction neutral. For Adobe Systems Incorporated, irrespective of whether the earnings move was up or down, if we waited two-days after the stock move, and then sold a 3-week at out of the money iron condor (using monthly options), the results were quite strong. This trade opens two calendar after earnings were announced to try to let the stock find equilibrium after the earnings announcement. We can test this approach without bias with a custom option back-test. Here is our earnings set-up: Rules * Open the short iron condor two calendar days after earnings * Close the iron condor 21 calendar days after earnings * Use the options closest to 30 days from expiration (but at least 21-days). And a note before we see the results: This is a straight down the middle volatility bet -- this trade wins if the stock is not volatile the three weeks following earnings and it will stand to lose if the stock is volatile. RESULTS If we sold this 30/10 delta iron condor in Adobe Systems Incorporated (NASDAQ:ADBE) over the last three-years but only held it after earnings we get these results: We see a 223% return, testing this over the last 12 earnings dates in Adobe Systems Incorporated. That's a total of just 228 days (19 days for each earnings date, over 12 earnings dates). Setting Expectations While this strategy had an overall return of 223%, the trade details keep us in bounds with expectations: - The average percent return per trade was 18.6% over 19-days. Looking at the Last Year If we focus in on the last year, we see these results: - The average percent return per trade was 13.7% over 19-days. WHAT HAPPENED This is it -- this is how people profit from the option market -- finding trading opportunities that avoid earnings risk and work equally well during a bull or bear market. To see how to do this for any stock we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Thanks for reading. Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
The Volatility Option Trade After Earnings in Adobe Systems August 30, 2017 - Capital Market Laboratories LEDE This is a slightly advanced option trade that starts two calendar days after Adobe Systems Incorporated (NASDAQ:ADBE) earnings and lasts for the 19 calendar days to follow, that has been a winner for the last 3 years. Adobe has earnings due out around September 19th, but that is not a confirmed date -- just be aware that the announcement is in the next few weeks. Adobe Systems Incorporated (NASDAQ:ADBE) Earnings While we have had tremendous success by recognizing the pre-earnings momentum pattern that has over taken this bull market, we do need to consider a broad portfolio of option investments -- and in this case we look at a back-test that is direction neutral. For Adobe Systems Incorporated, irrespective of whether the earnings move was up or down, if we waited two-days after the stock move, and then sold a 3-week at out of the money iron condor (using monthly options), the results were quite strong. This trade opens two calendar after earnings were announced to try to let the stock find equilibrium after the earnings announcement. We can test this approach without bias with a custom option back-test. Here is our earnings set-up: Rules * Open the short iron condor two calendar days after earnings * Close the iron condor 21 calendar days after earnings * Use the options closest to 30 days from expiration (but at least 21-days). And a note before we see the results: This is a straight down the middle volatility bet -- this trade wins if the stock is not volatile the three weeks following earnings and it will stand to lose if the stock is volatile. RESULTS If we sold this 30/10 delta iron condor in Adobe Systems Incorporated (NASDAQ:ADBE) over the last three-years but only held it after earnings we get these results: We see a 223% return, testing this over the last 12 earnings dates in Adobe Systems Incorporated. That's a total of just 228 days (19 days for each earnings date, over 12 earnings dates). Setting Expectations While this strategy had an overall return of 223%, the trade details keep us in bounds with expectations: - The average percent return per trade was 18.6% over 19-days. Looking at the Last Year If we focus in on the last year, we see these results: - The average percent return per trade was 13.7% over 19-days. WHAT HAPPENED This is it -- this is how people profit from the option market -- finding trading opportunities that avoid earnings risk and work equally well during a bull or bear market. To see how to do this for any stock we welcome you to watch this quick demonstration video: Tap Here to See the Tools at Work Thanks for reading. Risk Disclosure You should read the Characteristics and Risks of Standardized Options. Past performance is not an indication of future results. Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.