NeoPhotonics Corporation Using Put Spreads to Outperform the Stock – CML News

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PREFACE
Selling puts is a common option strategy during a bull market, but it turns out that looking at a lower risk put spread, and being rather clever in how we treat earnings, yields powerful results in NeoPhotonics Corporation (NYSE:NPTN) . More urgently, if we do not look at this approach, we would likely miss some worthy short put spread opportunities and incorrectly identify them as losers. This is one of those cases.

STORY
There is a lot less ‘luck’ involved in successful option trading than many people know, and it’s not about guessing stock price direction. Let’s review this phenomenon right now for NPTN. Let’s first examine a two-year back-test of a short put spread strategy implementing these rules:

* Trade monthly options (roll the trade every 30-days).
* Avoid earnings
* Test short put spreads for two-years

Here’s how to implement this quickly in the back-tester:

put spread avoid earnings set up

If we do this test, we find that the best short put spread to employ is the 30 delta, 10 delta put spread.

RESULTS
If we do a short put spread in NeoPhotonics Corporation (NYSE:NPTN) over the last two-years but always avoid earnings we get these results: