The Best Options Report Trading Results

In this post we are analyzing the results of our “Best Options Report” which we release each morning. For those of you familiar with the report, you can jump down to the results section below. If you are just learning about the report you can read more about it and sign up to receive it each day for free.

All of the data is live and linked here.

Key Points (For Those Who Don’t Read):

• 7/9 tables were profitable if traded as instructed
• You would have made $301,976 if you took every trade
• “Long calls” would have been the only unprofitable strategy
• Short puts were the top performer representing 60% of the profits generated
• Short calls and short puts, regardless of the day, table, ticker, or other variables were winners. Short calls made $136,518 in premium and puts delivered $86,703.
  
• The Ideal Strategy for Each Table in the Report (in Hindsight):
  • Long Calls: Cheap Calls and Cheap Puts, Earnings, Bearish
  • Short Calls: Expensive Calls and Expensive Puts, Efficient, Highest Premium, Bullish
  • Long Puts: Cheap Calls, Expensive Calls, cheap puts, Bearish, Bullish
  • Short Puts: Expensive Puts, Efficient, Highest Premium, Earnings

The Details and Analysis of These Results

What the Best Options Report really is. (Expand for more)

What is the Best Options Report?

The Best Options Report is an analytical tool designed for identifying potential profitable trading strategies. Every morning, our software conducts a comprehensive review of over 400 widely-traded stocks with weekly options in the market. Key aspects reviewed for each stock include: Historical Volatility verses Implied Volatility, Efficiency, and Direction. The columns in each table represent the methodology used in the report itself. In short, we compare Historical Volatility with Implied Volatility to highlight pricing opportunities (cheap or expensive on a relative basis) across the most popular and efficient optionalbe stocks.

The report compiles these analyses into bullish and bearish trade setups, presenting a selection of potential trades for consideration.

The Inputs and Assumptions for this Report (Expand for more)

The Inputs and Assumptions for this Report:

1. We take every trade represented, across all tables, and all days.
2. We analyze all four sides of a suggested trade (buying the call, selling the call, buying the put, selling the put).
3. We are filled at the “mid price” at the minute the report is generated on that particular morning for each particular stock.
4. We hold each trade until expiration and we assume our exit trade is the “mid price” of the option contract at 3:59 EST on the day of expiration (the options intrinsic value)
5. We are not considering “commissions” because every broker handles this differently, although it is important to note that no broker is truly “free” when considering commissions on options.
6. We are not considering any “slippage” associated with entry and exit trades given we are assuming a fill at the mid price.
7. We have infinite buying power, pay nothing in borrowing costs and receive no interest on cash.
8. All calls and puts were sold / bought “naked” as single leg strategies.
9. These are American style options contracts.
10. The basket of stocks considered is roughly the most popular 400 optionable stocks on the market all of which must support weekly expiration cycles.
11. Our strategy selected calls and puts that were an equal distance away from the underlying price, where both calls and puts were out of the money at the time of the report generation.
12. High beta, high volatility stocks ended up with higher delta option legs in this analysis and conversely low beta, low volatility stocks ended up with lower delta option legs. Each leg was a fixed percentage out of the money regardless of beta, volatility or deltas.

The Data Set Used (Expand for more)

The Data Set Used:

• The period in question covers the dates 5-15-2023 through 10-20-23 a period of 90 trading days.
• There are 9 tables in each report, 7 trades in each table. This equals 5,670 total trade ideas (minus some bugs/outliers).
• Each trade has a call and a put option, and each side of both is analyzed for a total of 22,680 results analyzed.
• More recent data (10-20-2023 and beyond) is not included in this particular analysis, but will be appended to the results page over time.
• We selected these 90 days of reports because all of the contracts represented have since expired and the trades occur during a relatively “flat” period in the market. The SP500 experienced a rally and a decline during this period starting at $413 and ending at $421.19. This is an attempt to eliminate a trend or directional bias in the underlying market which would manifest in the options market favoring calls or puts.
• There were a few software bugs during this period where nonsensical trades were suggested. Our data provider might not have returned an accurate bid/ask price at the time of the report which would then produce a relatively unreliable mid price. Those outlier trades were dropped from the dataset where possible.
• The prices and results listed are quoted in terms of options premium. To convert this to a real nominal dollar value we will be multiplying this by 100 in our calculations below (all option trades in this dataset represented 100 shares of the underlying – the typical lot size)

Now let’s review what is represented on this page, and how to interpret it.

The image above represents a summary of performance of every single trade suggested. Because we take all 4 sides of a trade into consideration, it makes sense that the totals of a particular table (cheap calls for example) would sum to zero. If we bought the calls and sold the calls, with no commissions or slippage, they would net out to zero – cancelling each other out. The same applies to puts.

You can manipulate this table using the pencil and trashcan icons on the left. Clicking the pencil allows you edit individual values, and clicking the trash can allows you to eliminate entire rows.

So for example, say under no circumstances will you ever buy puts – then you could delete the entire “Put Long PNL” row to see how a strategy of taking every trade besides long puts would have performed.

Looking at this table and assuming that all four sides of every suggested trade were executed doesn’t really make sense strategically (unless you are a broker, in which case this is the highest commission generating strategy!).

However, we can still glean some important insights from this analysis.

Short calls and short puts, regardless of the day, table, ticker, or other variables were winners. Short calls made $136,518 in premium and puts delivered $86,703. Long calls and long puts, regardless of the day, table, ticker or other variables were losers. Long calls lost -$136,518 and puts lost -$86,703.

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If you haven’t yet reached this conclusion, it should be obvious. Selling Options > Buying Options. Watch our video and read the blog post as to why this is the case.

Instead of assuming we trade all 4 sides of every trade suggested, lets instead review what was actually recommended as a strategy.

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Here is the text found with each table, on each report, which suggests how an option trader might trade these positions. Read this carefully – as most people engaging with our content neglect to read it and comprehend the recommendations for each table.

• Cheap Calls: These call options offer the lowest ratio of implied volatility (IV) relative to historical volatility (HV). These options are priced expecting the underlying to move up less than it has moved up in the past. Buy these calls.
• Expensive Calls: These call options offer the highest ratio of call implied volatility (IV) relative to historical volatility (HV). These options are priced expecting the underlying to move up significantly more than it has moved up in the past. Sell these calls.
• Cheap Puts: These put options offer the lowest ratio of put implied volatility (IV) relative to historical volatility (HV). These options are priced expecting the underlying to move down less than it has moved down in the past. Buy these puts.
• Expensive Puts: These put options offer the highest ratio of bearish premium paid (IV) relative to historical volatility (HV). These options are priced expecting the underlying to move down significantly more than it has moved down in the past. Sell these puts.
• Most Bearish: These stocks and put options are the most directionally bearish. Fade the recent bearish action by selling high premium puts or join the trend with puts with low “Put Pricing.”
• Most Bullish: These stocks and call options are the most directionally bullish. Fade the recent bullish action by selling high premium calls or join the trend with calls with low “Call Pricing.”
• Highest Premium: These options offer the highest ratio of implied volatility (IV) relative to historical volatility (HV). These options are priced to move more than they have moved in the past. Sell iron condors on these as they may be over priced.
• Upcoming Earnings: These stocks have earnings approaching and their premiums are usually elevated as a result. These are high risk high reward option plays where you can buy (long options) or sell (short options) the expected move.
• Most Efficient: These stocks have the best liquidity. This means that they offer the least slippage, tightest spreads and the cheapest cost of a round trip trade. Best for short term trades.

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Now let’s assume we traded the Best Options Report as suggested.

Trading the Report as Suggested

Quick Insights From These Suggested Strategies

• 7/9 tables were profitable if traded as instructed
• You would have made $301,976 if you took every trade ($3,019.76 in option premium * 100)
• Only going “long calls” would have been an unprofitable strategy
• Short puts its the top performer representing 60% of the profits generated

Lets review some insights on each individual table and break it down even further.

Insights from Each Table Aggregated

• Cheap Calls:
  • Long calls worked producing a profit of $21,805
  • Long puts were profitable as well, but were not suggested (see the “ideal strategy” below)
  • Insight: consider a strangle with a call side bullish bias.
• Expensive Calls:
  • Shorting calls worked the best out of any call trade across all tables producing $93,831 in profit
  • Long puts were profitable as well, but were not suggested (see the “ideal strategy” below)
  • Insight: When vol is priced for a very large upside move, it is quite profitable to sell those calls regardless of the company or environment
• Cheap Puts:
  • Long puts were profitable generating $13,914. This was the least profit of all profitable trade suggestions.
  • Selling calls did not work, but going long calls were profitable as well, but were not suggested (see the “ideal strategy” below)
  • Insight: When puts are cheap its because no one wants them and the market is going up.
• Expensive Puts
  • Selling puts on this table generated $38,193.
  • Selling calls were also profitable, but were not suggested (see the “ideal strategy” below)
  • When puts are expensive, calls are also very likely to be expensive as well.
  • Insight: Consider condors on expensive puts with a directional bias.
• Most Efficient:
  • Shorting puts was the top performer by a significant margin generating $162,388. These are puts on the indexes and the most popular stocks.
  • Selling calls also worked, but to a much less degree, generating $20,353.
  • Insight: Most efficient options markets imply that they are the most fairly priced – with the largest amount of market participants competing over price. With that as a contextual backdrop, it makes sense that over time option sellers are rewarded for providing options liquidity as HV is typically less than IV (the premise of this strategy)
• Highest Premium:
  • Selling calls generated $68,135 and selling puts generated $25,131 totaling $93,266.
  • We like seeing this because “high premium” is the core premise of our strategy. Seeing both sides (calls and puts) be profitable as an option seller lends validity to the strategy.
  • Insight: when premium is elevated the market is likely expecting volatility and most often pricing in protection to the downside. This implies that the puts were overly expensive, but not as relatively expensive as the calls suggested at the same time. When puts are expensive, there is a high likely hood that a percentage of those puts will move in the money as the expected downside move is realized.
• Upcoming Earnings:
  • Short calls lost $71,278 and short puts generate $49,213 for a net result of -$22,065.
  • This table had the biggest volatility in regards to returns PNL. Meaning, the average of all the absolute values found in this column was the highest of any table. This makes sense as earnings events are binary and lead to big short term moves.
  • In conclusion the call options priced in this table were not priced high enough as IV turned out to be less than RV and HV. Put options were priced relatively fairly although IV was greater than RV.
  • During this earnings season, most earnings had significant beats as expectations were low – which helps explain these results. Historically earnings typically beat expectations because management and wall street have an inherent bias to maintain a lower bar and a lower expectation while knowing that they will likely beat it in the next quarter. Companies only really lower their earnings outlook in advance and almost never raise it for this reason.
  • Insight: Consider selling puts and buying calls on earnings plays so long as the market is in a flat or bullish trend
• Most Bearish:
  • Long puts worked generating $73,287 while short calls did not losing $22,571 netting $50,716
  • Admittedly this table does not provide much explanatory power in terms of future direction of the underlying.
  • These “bearish trending” stocks either had a sharp rebound (turning short calls into losers) or continued bearish (turning long puts into winners)
  • Insight: Consider buying calls and puts on these trades because the underlying is likely going to move lower, or move higher, quite drastically in a short time period.
• Most Bullish:
  • Going long on calls lost -$89,378 and going short on puts generated -$81,47 in losses netting -$170,405 .
  • This was by far the worst performing table and strategy – performing 5x worse than the next closest loser and nearly wiping out all of the gains from the most profitable strategy (most efficient)
  • The “most bullish” indicator is should be inversed!
  • These “bullish trending” stocks ended up being more “meme” stocks and were likely due to a pullback. This could have been a result of the current macro environment or just “noise” but the results were quite poor.
  • There seems to be an inverse correlation between a recent EXTREME bullish trend and its continuation.
  • Insight: Extreme bullish trends will face pullbacks. Sell the calls (probably expensive) and buy puts (probably cheap)

Insights From the Totals Column

• Long V Short:
  • Regardless of strategy/table/vix
  • Long calls and long puts were all in negative (total column)
  • Short calls and puts were positive (total column)
• Biggest Loser:
  • Betting against the most efficient companies with long puts
  • The market likes these stocks and trades them often, they probably are going up
• Biggest Winner:
  • Selling puts on most efficient
  • The market likes these stocks and trades them often, they probably are going up

If The Ideal Strategy Was Traded (With Hindsight):

This ideal strategy would have produced winners on every table, on all four sides totaling: $908,949. Keep in mind, this isn’t saying we only kept winning trades, this is showcasing only the winning strategies for each table. Contained in each are both winning and losing trades, but the strategy itself was profitable overtime with winners outweighing losers.

Here is how you should have traded it across each side and table:

• Long Calls: Cheap Calls and Cheap Puts, Earnings, Bearish
• Short Calls: Expensive Calls and Expensive Puts, Efficient, Highest Premium, Bullish
• Long Puts: Cheap Calls, Expensive Calls, cheap puts, Bearish, Bullish
• Short Puts: Expensive Puts, Efficient, Highest Premium, Earnings

Don’t Believe It? Check Our Work:

Each report date is hyperlinked to the report generated on that date. Click the report date to view when we posted it and all the trades represented.

Each report shows each table and trade. Click the call and put strike linked.

Each trade shows the entry and exit price. For example, here you can see the Meta 250 Call expiring 06-30-2023 with the entry and exit prices plotted on the graph.

Frequently Asked Questions

But how do we know these reports are not “repainted” or adjusted after the fact?

You can see our public posts on Reddit and X – each of which correspond to the date/time/trades we analyzed. We post these publically and do not edit them so we can validate this strategy.

How do we generate these signals and trade ideas?

With our custom python code and proprietary algorithm.

How can you access the best options report?

Sign up, it’s free.

What is the total risk or capital allocated to for each trade?

We haven’t computed this yet. One might assume a naked position, or a 10 strike wide spread, or a variety of other ways to manage capital exposure. Each would severely limit the max return and max loss for each strategy. We may come back to this analysis and assume the buying power reduction necessary for all “cash secured puts” and assume something similar for “covered calls”