"The event is rare, but when it has occurred, the back-test results are noteworthy." This is a good example of how to be mislead into thinking an approach is a trading system to be followed or that such research is truly useful. 2 events in 2 years...... 2 events out of 8 earnings reports is as random as this trade is in making money. This is a coin toss trade disguised as research. PZZA reported and gapped down 4-5%. If you bought the ATM put then you would have lost quite a bit of money even assuming you got out at the magical/fantasy/NOT GOING TO HAPPEN 40% stop. Unlike this THEORETICAL tool, I actually traded this postion using a calendar and the b/a spread was as wide as $0.80. That means the individual put legs also had some pretty WIDE spreads. I had to work the inside of the b/a to get filled. So to ASSume you would just simply get out at 40% stop loss is negligent to propose and slightly ignorant of the stock being analyzed. You might have taken a 50-70% loss since the day after the stock was sideways and then surged $2.50 . A .50 delta put would have lost half of that theoretically and more due to b/a spread. I am sure the tool can be used for good but to offer some magical trade on 2 event occurrences with a stock that has some pretty wide b/a spreads means the 2 event backtest results are wrong and biased and unrealiztic to actual fills. Also 2 events is what we call an example. If I go back and find out 2 times in past 2 years a stock jumped higher on Friday the 12th, are you going to load up on the next Friday the 12th at the close? So I am sure the tool will work better on backtesting other stocks with more detailed results and more common patterns, but on a stock like PZZA, this past earnings proved the offered system above is just random mining 2 events and misleads based on actual data. The loss here would have been large for anyone who took the trade using options with 2 weeks out as recommended (because theta was never considered...another weakness of the system).
This trade was entered and stopped in less than two hours. How much for this incredible service? Excelsior!