Option Trading Strategy Results: 30-Dec-16 Weekly Expiration


Re-Tweet
Share on Facebook
Share on Google+
Share on LinkedIn

It was generally a good week for volatility sellers in the options market for the weekly expiration of 30-Dec-2016. This was especially true for calls; winners were far more prevalent for puts and at-the-money bets, but losers outpaced winners across the board.

As could be expected during a holiday period, the market lacked major catalysts during the week.  Profit taking led the major averages to close out 2016 with a three-day losing streak, drifting off their recent highs.

For the week, the Dow dropped -0.9%. Meanwhile, the Nasdaq slipped -1.5% and the S&P 500 tumbled -1.1%. 

This was the whimper that ended a bang of a year though. The year as a whole saw the Dow jump +13.4%, the Nasdaq climb +7.5% and the S&P 500 advance +9.5%.

For the final week of the year, unhedged ATM bets returned winners 41.9% of the time, leading to an average loss of 6.6%.  The call side is where the real blood-bath occurred.  Only 4.6% of unhedged 25-Delta Call positions came back winners and the average loss was 79.6%. 

Winners were more prevalent for 25-Delta Put bets.  Unhedged positions here were winners 33.9% of the time during the week - still generally a loser 2 out of every 3 times - but the average return was positive at +23.9%.

Standouts

VanEck Vectors Junior Gold Miners ETF (GDXJ) -- Gold mining stocks were big winners on the week.  Gold prices suffered a decline in the wake of Donald Trump's election as president, but bounced back during the final week of the year.  This rise boosted gold miners, especially during a rally on Thursday.

As such, the GDXJ, a gold-mining ETF, was one of the standout performers on the call side during the week.  Unhedged 25-Delta Calls for GDXJ had an average return of +700%.  Unhedged ATM Straddles returned an average of +126.1%.

iShares Nasdaq Biotechnology (IBB) -- Sticking to the ETF theme, biotech stocks did particularly poorly during the week.  This was evidenced by a steady decline in the IBB, a biotech sector ETF, which started the holiday-shortened week with an initial advance but then lost ground steadily through the rest of the week.  25-Delta Puts for IBB had an average return of +589.8%, while ATM Straddles returned +108.7%.

Hedging Comparison

It was a mixed bag for hedging during the week.  Generally, it was best not to hedge, except on the call side.

Once-hedged positions were the saving grace for the 25-Delta Call bets, turning a significant loser during the week into a winner.  However, the effect was the opposite on the put side, turning a winning position, on average, into a losing one.

Once-hedged 25-Delta Calls had an average return of +18.4%, compared to a loss of -79.6% when unhedged.  Daily hedges weren't as helpful, but did work to cut the losses, with an average loss of -17.2%.

Once-hedged 25-Delta Put positions had a negative return of -64.3%, compared to a positive +23.9% when unhedged.  This just got worse when hedged daily.  The average loss for a daily hedged 25-Delta Put was -94.2%.

For ATM Straddles, once hedging had little impact, turning an average loss of -6.6% when unhedged into an average loss of -6.1% with single hedging.  On average, daily hedging was a mistake, however.  The average loss expanded to -24.8% with this strategy.