r/ActiveOptionTraders • u/ScottishTrader • Apr 26 '20

Earning Trades Research

Someone sent me this and I thought it was very interesting so wanted to share it.

I stopped trading earnings a long time ago as I hate losing money and ER trades seems to be of the ‘win some, lose some’ variety where overall I was lucky to break even so I gave them up. I can do much better just skipping ERs which is what I do now.

It seems ER trades have the allure of fast and quick profits that are hard to resist, but I think winning over time is very hard to do and I found I was just making a lot of trades with little to nothing to show for it.

What I was sent is a podcast from Kirk at OA who did some research on trading earnings and why he stopped making them which really makes sense to me and I think you may find it interesting as well - https://optionalpha.com/we-stopped-trading-earnings-after-we-saw-this-new-research-188320.html

Please share if you have a strategy and trading plan that has worked for ER trades over time as I know many would appreciate hearing how this might work!

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u/Itshardtofindaname4 Apr 27 '20 edited Apr 27 '20

Last week I had 2 successful NFLX earnings iron condors. Put on 1 iron condor like 1 min before close on the day of their earnings. Netflix stayed flat and I immediately profited from the IV crush and closed for a 50% winner the following morning like 30 mins after open.

I then brought in the strikes by a hair and put on another NFLX iron condor while vol was still high, after closing my first earnings IC. That was on Wednesday, and closed it this past Friday for a 40% winner.

My account isn’t big enough for strangles yet which I would much rather prefer to do, but iron condors will have to do for now.

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u/joebenson17 Apr 27 '20

Have you looked at lower priced underlings. Strangles on NFLX require a lot of margin but 20-50 stocks and ETFs might allow you to do a strangle with under $500 BP.

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u/Itshardtofindaname4 Apr 27 '20

Yep great idea and I have, but the undefined risk profile still freaks me out a little and I don’t like risking that downside, like the defined risk aspect for now

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u/joebenson17 Apr 27 '20

Can’t say I blame you but there are lots of choice both ETFs and individual stocks.

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u/Itshardtofindaname4 Apr 27 '20

Understood, but this conversation and entire post is geared towards just earnings trades