When An Option Increases Nearly 9,000%

Fundlord

Fundlord

The stock AXLL gained over 80% on the 29th of January on some good fundamental data.

The options were trading at 0.05 on the 28th an traded as high as 4.50 on the 29th that is a 9,000%.

Could betting on a variety of stocks via options the day before earnings, drug trial announcement etc be a sustainable strategy ?

Researching the company and coming up with a thesis as to whether it has an earnings surprise or not gives you some edge plus the volume is low on most of these options so big players are not interested in buying them.

SAC has a similar strategy except they are allegedly far more certain on the earnings surprise/fda approval than the average investor.
 
rmorse said:
Stock was up because of a tender offer. I'm not sure how anyone can consistently make money looking for lottery tickets.

http://www.thestreet.com/story/1344...r-offer.html?puc=TSMKTWATCH&cm_ven=TSMKTWATCH
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I know that was a special situation, but earnings dates are pretty well known and pretty much have 3 outcomes:

The stock falls sharply (win big on a put lose small on a call)

The stock gains massively (win big on a call lose small on a put)

Stock goes up or down moderately or remains flat. (exit trade while option still has value for a negligible loss)
 
"Tongue in Cheek": Lottery tickets are great in hindsight! (Hmm!!! perhaps I failed to answer appropriately!)

Actually, if back-testing proves this a profitable strategy, then it seems worthwhile. -- I am trying to get a handle on how to evaluate similar non-intuitive trades. So, this is probably not a frivolous question, but should be quantifiable, given enough thought and effort.
 
Fundlord said:
know that was a special situation, but earnings dates are pretty well known and pretty much have 3 outcomes:
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That is of course true, however, in my experience, betting on stock direction from earnings has a low percentage win rate unless you have some edge. Even if you knew 100% what the earning were going to be, the comments they make on the next quarter and other items that come out during conference calls can be just as important. I like to trade option spreads before earnings, but betting on direction is hard.
 
stepandfetchit said:
"Tongue in Cheek": Lottery tickets are great in hindsight! (Hmm!!! perhaps I failed to answer appropriately!)

Actually, if back-testing proves this a profitable strategy, then it seems worthwhile. -- I am trying to get a handle on how to evaluate similar non-intuitive trades. So, this is probably not a frivolous question, but should be quantifiable, given enough thought and effort.
More...

Back testing can be a funny thing, as you know what has happened in the past. You can design a strategy that worked for what happened, not necessary for what will happen.
 
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Im just trying to get positive EV in the markets and I thought this could be a way since I trading based on a perceived fundamental edge vs trading based on price like I do in the futures market.

Even though I make money it all feels like luck, gut, intuition.
 
It can be done, but you need an edge. You can design options spreads that have a high probability of success after earnings, based on your assumptions. I know a hedge fund that believes they can predict earnings disappointment/beats based on analysis of social media/advertising. You just need some bases backed by analysis that gains you an edge. Edge is everything.
 
Fundlord said:
Could betting on a variety of stocks via options the day before earnings, drug trial announcement etc be a sustainable strategy ?
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Yes ........ But the big hurdle is Psychology. How many 100% losses in a row can you take before you give up?

IMO ......... You will need a winning trade in the first 5 trades - otherwise those losing trades will be a heavy burden and it would be impossible to continue.



:)
 
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