Backtesting
Thursday, June 18th 2020
Backtest Basics: Trading Around Earnings
See how to construct options trading strategies around earnings, to avoid being in a position at earnings announcement or to trade during the earnings move.
Summary
Learn how to construct options trading strategies around earnings or avoid being in a position at earnings announcement using a backtester. Set Entry Date Triggers to initiate a trade before earnings and Exit Date Triggers to exit relative to earnings. Examples of a covered call strategy and an iron butterfly strategy are provided.
In our backtester, you can test a strategy that trades around earnings as well as strategies that avoid earnings.
To use the earnings date feature, select Entry Date Triggers setting how many days before earnings to initiate a trade and then select Exit Date Triggers to set when to exit relative to earnings.
To avoid earnings, you would set the Entry Date Trigger min/max however many days before you want. For the covered call strategy, we set these to min=20 and max=75 to make sure we don't trade back into a strategy that we just exited. This gives us enough time to be in the trade before exiting the day before earnings announcement.
For exiting covered call strategy, select the Exit Date Triggers and set the Occurrence to 'before' and the Days to 1.
If you want to trade a strategy around earnings, you can set the entry days lower like min/max 1 to 3.
Instead of before, set the Occurrence to after.
Here is an example avoiding earnings, an INTC short call:
Here is an example trading earnings, an AMZN iron butterfly:
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