For an explanation of our methodology, visit: https://marketchameleon.com/Blog/post/2016/09/09/option-trading-strategy-analysis-our-methodology
It was a difficult week across the board for buyers of volatility in the options market for the weekly expiration 13-Jan-2017. Calls performed somewhat better than puts, but winners in both strategies were extremely hard to find.
Unhedged ATM bets were winners 22.2% of the time, leading to an average loss of -31.6%. 25-Delta Puts returned winners just 6.3% of the time, with an average loss of -76.6%. 25-Delta Calls saw winners nearly twice as often, but still only had winners 11.8% of the time. The average loss for the strategy was -49.4%.
Bristol-Myers Squibb ($BMY)
Drug makers suffered a sell off last week, prompted by further comments from incoming president Donald Trump. During his much-anticipated press conference on Wednesday, Trump again suggested that he would like to take steps to lower drug prices, using the government's leverage as a buyer through Medicare as the method.
“We’re the largest buyer of drugs in the world," Trump said. "And yet we don’t bid properly. We’re going to start bidding.”
Pfizer and Bristol-Myers were both victims of the sell off, along with a number of drug makers. An unhedged 25-Delta Put for BMY returned an average gain of +730.9% during the week. For PFE, it was +321.7%. Unhedged ATM Straddles had an average return of +154.9% and +80.7% for BMY and PFE, respectively.
Exxon Mobil ($XOM)
Exxon Mobil may have also suffered from a "Trump effect" during the week. The oil maker's former CEO Rex Tillerson faced Congressional grilling as part of his confirmation hearing as Secretary of State. Meanwhile, the stock lost ground on Monday and Tuesday and failed to mount an effective rally later in the week.
Unhedged 25-Delta Puts for X returned an average gain of +244.2%. Unhedged ATM Straddles had an average return of +41.3%.
Cameco Corp. ($CCJ)
Positive analyst comments drove gains in shares of Cameco, a Canadian-based uranium company. Bank of America raised its rating on the stock to Neutral. Meanwhile, TD Securities also raised its rating on the stock, in this case to Buy. In increasing its rating, TD cited an announcement by Kazakhstan’s state-owned uranium producer that it was cutting production, a sign that prices may have bottomed.
Unhedged 25-Delta Calls for CCJ returned an average gain of +2,186% during the week. Unhedged ATM Straddles had an average gain of +518.9%
Hedging was generally ineffective during the week. It helped limit losses slightly for 25-Delta Puts, but exacerbated losses on the call side. Hedging made only a negligible difference for ATM bets.
Once-hedged 25-Delta Puts had an average loss of -58.1%, an improvement from the average loss of -76.6% for unhedged bets. Daily hedging improved things further, but only slightly. The average loss for daily hedged 25-Delta Puts was -51.7%.
Meanwhile, single hedges for 25-Delta Calls turned an average unhedged loss of -49.4% into an average loss of -66.7%. Daily hedging had an average loss of -54.6% for this strategy.
For ATM bets, hedging had little impact. The average loss was -31.6% for unhedged positions, -32.1% for single hedges and -29.1% for daily hedging.