holygrail to the stock market-win>90%

[Ninja7]

Here are the results from my top three strangle earning plays for the past week. The table below shows how strangle plays worked out in percentage gains/losses. The EOD column is the results at the end of day after the earnings came out, and the EOW column is the results at the close of this week. Obviously, they will continue to change (for better or worse) depending on how long one continues to hold them. You would have had a slight loss if you played all three and were still holding at the end of the week. I have some comments on strike prices, timing, etc. at the end of this post.

				EOD	EOW		 
 WAG	40/44 strangle		-5%	-30%		 
 JBL	18/20 strangle		17%	26%		 
 BBY	30/34 strangle		-31%	0%		 
 

I also looked at playing the same three as straddles. These results are below. You would have done slightly better overall doing this.

				EOD	EOW 
 WAG	42/42 straddle		5%	-16%		 
 JBL	19/19 straddle		6%	18%		 
 BBY	32/32 straddle		-16%	6%		 
 

Here are some observations/suggestions (all just IMO)...

- Straddles seem to be better for smaller percentage moves; while strangles do better for larger moves.

- A good strike price selection for a strangle is around the absolute value of the typical earnings day move. For example, if a company has previous earnings day moves of 5%, -6%, 4%, and 20%, the typical is around 5% (i.e. don’t take a single big outlier into consideration). If you pick strike prices too far away, you will lose a lot if it doesn’t move much. If you’re too far in, you will gain less if it moves big (risk/reward trade-off).

- Buy an equal dollar amount of puts and calls--not an equal number of options. You can always bias this one way or another depending on how confident you are that the price is going up or going down on earnings.

- Buy the strangle at the end of the day, not at the beginning.

- Pick an option expiration date that is far enough out that you have time to be right. Again, this is a risk/reward trade-off, but options very close to expiration decline in value rapidly unless they are fairly deep in the money. Unless you are really sure there will be a big move, I would suggest you give yourself at least a month until expiration. This way you can hold them for a week or so to let the full effect of the earnings play out. If the expiration date is too close, you’ll probably lose any price improvement to time value decay.

Finally, my intention was to play very small experimental positions in all three of these this week. I ended up getting busy at work and missed out on JBL (of course, lol) and only played WAG and BBY. I’m still holding both of them. I think BBY still has some downside left. WAG is a tougher call. I should have sold it first thing the next day, but I really expected it to retest the low later in the day, but it just kept drifting up. It seems to be turning over today, but we’ll see how far back down it goes on Monday.

Thoughts/feedback are welcome.