Option Trading Strategy Results: 16-Sep-2016 Weekly Expiration

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  • Great Week to be Option Straddle Seller: ATM Straddles Lose -34.4% Premium on Average
  • Upside 25-Delta Calls Decline an Average of -26.3%; Downside 25-Delta Puts Collapse -71.8%


For more information on our strategy tracking methodology, visit this previous post.

For the weekly expiration of 16-Sep-2016, it turned out to be an excellent one for volatility sellers in the option market. Unlike the previous week, when the market took a late-week wild swing to the downside, this week, the market was relatively steadier, starting with a +1.4% gain on Monday before reverting back and staying steady. The spike in volatility from the previous week came back in, and as a result, lots of option premiums on the market took significant hits. By almost every measure we had, option buying strategies lost money on the week, the only (very slight) salvation being the daily-hedged 25-Delta Call strategy, which returned +0.2% on the week.

During this week, since it was a monthly expiration, and more products list monthly expirations than they do weekly ones, we ended up with far more observed results than we had the previous week. This gave us a bigger picture of what was going on in the options market, and that picture was mostly of decline. For unhedged options, 78.5% of ATM Straddles were losers, for a total net average of -34.4% return. Unhedged 25-Delta Calls were losers at a clip of 85.3%, with a net average return of -26.3%. And the 25-Delta Puts suffered the most, with 91.6% of products ending as losers for a net average return of -71.8%.


Of course there are some standouts to mention.

Apple [$AAPL] released its newest version of the iPhone last week, with customers lining up around the block to buy the phone and traders lining up around the globe to buy the stock -- it closed the week up +11.4% from the previous Friday. As a result, ATM Straddles and 25-Delta Calls both saw significant gains on the week. Straddles returned +387% and the upside calls jumped +2027%. On the flip side, Apple's downside-speculative 25-Delta Puts lost all of their value.

Bluebird [$BLUE], a clinical-stage biotechnology company that develops gene therapy, saw ATM Straddle gains of +375%. The company stock rocketed up 20% on the week after presenting at the Morgan Stanley Global Healthcare Conference on September 13.

Hedging Comparison

It appears that re-hedging the option deltas for the week turned out to be a better strategy than simply buying the options unhedged, however even those benefits were not enough to make buying premium a winning strategy for the week. Daily Hedged ATM Straddles return a net average of -20.2% on the week, better than the -34.4% we saw from unhedged, but still a disappointment for option buyers.

Hedging the 25-Delta Calls turned out to produce a net positive result of +0.2%, which far exceeded the unhedged return of -26.3%, and hedging the 25-Delta Puts returned a net of -29%, a much more mild loss than the -71.8% from the unhedged strategy.

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