Option Trading Strategy Results: 10-Feb-17 Weekly Expiration


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For an explanation of our methodology, visit: https://marketchameleon.com/Blog/post/2016/09/09/option-trading-strategy-analysis-our-methodology

It was generally another difficult week for buyers of volatility in the options market for the expiration 10-Feb-17.  There were some profitable trades to be found on the call side, however, as long as the bets were left unhedged.  Puts saw the worst of the week, another in a string of bad weeks for that strategy.

Unhedged ATM Straddle positions returned winners 31.4% of the time, a slight improvement from the previous week.  The average loss for the strategy was -18.9%.

Returns were better for 25-Delta Calls.  Unhedged, the strategy returned winners just 25.7% of the time.  However, the average winner returned more than +300%, giving the strategy as a whole an average return of +7.0%.

For 25-Delta Puts, it was another tough week for buyers.  Just 4.8% of unhedged positions returned winners, leading to an average loss of -84.2%. 25-Delta Puts have generally been losers so far in 2017, with this past week being a standout for poor performance.

Standouts

Cree Inc. (CREE)

Shares of Cree dropped sharply on Thursday on news that its Wolfspeed transaction with Infineon Technologies would not go through.  A U.S. regulator deemed that the proposed acquisition of Wolfspeed Power & RF and the related substrate business from Cree would pose a risk to the national security of the U.S. 

On the news, shares of Cree dropped $2.24, or about 8%, to close at $25.71 on Thursday.  It posted a fractional recovery on Friday, ending the week at $25.79.

Unhedged 25-Delta Puts for CREE returned an average of +662.2% for the week.  Unhedged ATM Straddles were up +191.4% on average.

Yelp Inc. (YELP)

Yelp lost ground on Friday following the release of its quarterly report.  The company's results for the fourth quarter beat expectations, but its forecast for the first quarter was below expectations.  The company predicted a top-line result of $195 and $199 million for Q1, below the $204.43 million consensus estimate that analysts had going into the report. 

On the news, shares of Yelp plunged $5.66, or 13.6%, on Friday, finishing the session at $35.83.  This took the stock to its lowest level since December.

25-Delta Puts for YELP were up an average of +226.8% on an unhedged basis.  Unhedged ATM Straddle positions had an average return of +38%. 

Nike (NKE)

Nike shares gained steadily through the week, recording a higher close in five consecutive sessions.  Overall, the stock gained $3.86, or more than 7%, during the week, to finish Friday at $56.22.  There was no specific news to drive the advance, though there were gains elsewhere in the athletic apparel sector.  Rival Under Armour (UA) also gained ground during the week, though the performance was more modest. 

The perception coming out of the last round of earnings reports was that Nike had outperformed Under Armour last quarter, with Nike beating expectations and Under Armour losing ground following an earnings miss.

Unhedged 25-Delta Calls for NKE posted an average gain for the week of +1,854.5%.  Unhedged ATM Straddle positions were up an average of +351.9%.

Deckers Outdoor (DECK)

Shares of UGGs maker Deckers Outdoor spiked on news that an activist investor has taken a stake in the company.  Marcato Capital Management revealed a 6% stake in the company and said that it planned to push the footwear company to investigate "strategic alternatives," which could include a sale of the company.  The stock began to rally late Wednesday and continued to climb in Thursday's session.  Shares eventually closed Friday at $52.10, up $7.11, or nearly 16%, from Tuesday's close.

Unhedged 25-Delta Call positions for DECK gained +1,278.3% for the week.  Unhedged ATM Straddle bets were up an average of +236.2%.

Hedging Comparison

Hedging was a useful strategy on the put side, allowing traders to significantly limit losses.  However, for calls, hedging turned an overall profitable position into one that posted notable losses for the week.  There was little impact from hedging on ATM Straddle positions.

For 25-Delta Call positions, hedging turned an average +7.0% gain for unhedged position into a -58.8% average loss for single hedges.  Daily hedging was less severe, though there was still an average loss for this position of -36.6%.

25-Delta Puts had an average loss of -84.2% for unhedged positions.  These losses were cut to -22.7% for single hedges and -30.0% for daily hedges.