"The event is rare, but when it has occurred, the back-test results are noteworthy."
This is a good example of how to be mislead into thinking an approach is a trading system to be followed or that such research is truly useful.
2 events in 2 years...... 2 events out of 8 earnings reports is as random as this trade is in making money. This is a coin toss trade disguised as research.
PZZA reported and gapped down 4-5%. If you bought the ATM put then you would have lost quite a bit of money even assuming you got out at the magical/fantasy/NOT GOING TO HAPPEN 40% stop.
Unlike this THEORETICAL tool, I actually traded this postion using a calendar and the b/a spread was as wide as $0.80. That means the individual put legs also had some pretty WIDE spreads. I had to work the inside of the b/a to get filled. So to ASSume you would just simply get out at 40% stop loss is negligent to propose and slightly ignorant of the stock being analyzed. You might have taken a 50-70% loss since the day after the stock was sideways and then surged $2.50 . A .50 delta put would have lost half of that theoretically and more due to b/a spread.
I am sure the tool can be used for good but to offer some magical trade on 2 event occurrences with a stock that has some pretty wide b/a spreads means the 2 event backtest results are wrong and biased and unrealiztic to actual fills. Also 2 events is what we call an example. If I go back and find out 2 times in past 2 years a stock jumped higher on Friday the 12th, are you going to load up on the next Friday the 12th at the close?
So I am sure the tool will work better on backtesting other stocks with more detailed results and more common patterns, but on a stock like PZZA, this past earnings proved the offered system above is just random mining 2 events and misleads based on actual data.
The loss here would have been large for anyone who took the trade using options with 2 weeks out as recommended (because theta was never considered...another weakness of the system).
This is a good example of how to be mislead into thinking an approach is a trading system to be followed or that such research is truly useful.
2 events in 2 years...... 2 events out of 8 earnings reports is as random as this trade is in making money. This is a coin toss trade disguised as research.
PZZA reported and gapped down 4-5%. If you bought the ATM put then you would have lost quite a bit of money even assuming you got out at the magical/fantasy/NOT GOING TO HAPPEN 40% stop.
Unlike this THEORETICAL tool, I actually traded this postion using a calendar and the b/a spread was as wide as $0.80. That means the individual put legs also had some pretty WIDE spreads. I had to work the inside of the b/a to get filled. So to ASSume you would just simply get out at 40% stop loss is negligent to propose and slightly ignorant of the stock being analyzed. You might have taken a 50-70% loss since the day after the stock was sideways and then surged $2.50 . A .50 delta put would have lost half of that theoretically and more due to b/a spread.
I am sure the tool can be used for good but to offer some magical trade on 2 event occurrences with a stock that has some pretty wide b/a spreads means the 2 event backtest results are wrong and biased and unrealiztic to actual fills. Also 2 events is what we call an example. If I go back and find out 2 times in past 2 years a stock jumped higher on Friday the 12th, are you going to load up on the next Friday the 12th at the close?
So I am sure the tool will work better on backtesting other stocks with more detailed results and more common patterns, but on a stock like PZZA, this past earnings proved the offered system above is just random mining 2 events and misleads based on actual data.
The loss here would have been large for anyone who took the trade using options with 2 weeks out as recommended (because theta was never considered...another weakness of the system).
