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


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The weekly expiration of 16-Dec-2016 turned out to be a great one for sellers of volatility in the options market.

In retrospect, it isn't surprising that the market saw little movement during the week.  The biggest news of the week was the Fed decision, which had been clearly telegraphed.  Otherwise, the slate of market-moving news was almost non-existent.  And with the major averages setting new highs recently, it wasn't clear whether the momentum would be there to continue to carry it higher.

As it happened, the Dow rose by 0.4% for the week as a whole, while the Nasdaq and S&P 500 each edged down by about 0.1%.

For unhedged ATM Straddles, the average return was -20.7%, with 70.7% finishing as losers for the week.  Losers were even more prominent among 25-Delta Call and 25-Delta Put traders.  On the call side, unhedged bets returned an average of -76.0%, losing 94.1% of the time.  For puts, the strategy lost 77.8% of the time, but the average return for the week was far better, at -5.7%. 

Standouts

Nordstrom [$JWN] drifted lower early in the week, before suffering a sharp sell off on Friday prompted by an analyst downgrade.  The stock fell $4.80, or 8.7%, during the session, to finish at $50.48, it's lowest close since early November.  The decline followed a downgrade from JP Morgan Chase, which lowered its rating from Neutral to Underweight.  On the options market, the unhedged ATM Straddle had an average return of +390.5%, while the unhedged 25-Delta Put returned +3,017.8%.  The unhedged 25 Delta-Call was a total loss.

Meanwhile, Nvidia [$NVDA] rose during the week.  Reports, spurred by information included in a company job posting, teased some new products on the horizon.  These reports, generally published on Wednesday, were followed up by an upgrade on Thursday, with Evercore raising its rating on the stock to Buy from Hold.  The stock rose from a level around $89 early in the week to close Friday at $100.41.  The unhedged ATM straddle returned +195.1% for the week.  Unhedged 25-Delta Calls were up +1,096.7%.  Unhedged 25-Delta Puts were a total loss.