Couple of weeks ago, the CML published an article The Volatility Option Trade After Earnings in PayPal Holdings Inc.

The setup was:

“The week following PayPal Holdings Inc (NASDAQ:PYPL) has had one fairly consistent pattern — volatility. If we take a myopic view after looking at the last three-years and focus on the last six-months, that pattern is yet more decisive. Irrespective of whether the earnings move was large or small, if we tested waiting one-day after earnings and then holding a long out of the money (40 delta) strangle for one-week (using two-week options), the results were quite strong. This trade opens one-day after earnings were announced to try to find a stock that moves a lot after the earnings announcement.”

If we bought the out-of-the-money strangle in PayPal Holdings Inc (NASDAQ:PYPL) over the last three-years but only held it after earnings we get these results: 

 

PYPL
Long out-of-the-money strangle
 
% Wins: 64%
 
Wins: 7   Losses: 4
 
% Return:  174% 

Tap Here to See the Back-test


The backtest also defines very clear rules for the trade:

* Open the long out-of-the-money (40 delta) strangle one-calendar day after earnings.
* Close the strangle 7 calendar days after earnings. 
* Use the options closest to 14 days from expiration (but more than 7 days). 
 

On July 25, I posted the link to the PYPL potential trade on the forum:
 


On the next day I posted my entry:

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Please note that this trade didn’t make it into the official model portfolio due to higher potential risk – hence I mentioned “small allocation only”.

The next day, some of the members started posting their exit prices:

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I was out a day later for 27% gain:

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Some members did even better:

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And finally an interesting comment from another member:

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Those are real trades, from real traders, posted in real time. 

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