For an explanation of our methodology, visit: https://marketchameleon.com/Blog/post/2016/09/09/option-trading-strategy-analysis-our-methodology
It was another difficult week for buyers of volatility in the options market from the weekly expiration 24-Feb-17. However, it wasn't quite as bad as it has been on the put side, with the past week actually showing one of the more modest average declines for 25-Delta Puts in some time. Winners were most scarce on the call side, with fewer than 1 in 10 25-Delta Call positions returning a profit for the week.
Unhedged ATM Straddle bets turned up winners 31.5% of times, leading to an average loss of -17.1%. For unhedged 25-Delta Calls, the win rate was just 9.2%, with an average loss for the week of -48.4%.
Unhedged 25-Delta Puts returned winners 18.3% of the time, certainly a low winning-percentage on absolute terms. But in context, it actually represents one of the best performances for the put side in some time. For context, the last two weeks have had win rates for unhedged 25-Delta Puts of 4.8% and 9.4%, respectively. Last week's average loss for the position was -19.4%, also comparatively close to the breakeven mark after posting average losses of -84.2% and 67% in the previous two weeks.
HP Inc. (HPQ)
HP posted a significant gain this week on better-than-expected earnings news. The tech giant's bottom line rose to $0.38 per share, compared to $0.36 per share last year and Street expectations of $0.37 per share. Shares rallied on Thursday following release of the news and held their gains during Friday's session. The stock closed out the week at $17.66, compared to a close the prior Friday of $15.95.
Unhedged 25-Delta Call positions for HPQ returned an average gain of +578.9% for the week. Unhedged ATM Straddle positions returned an average of +105.6%.
TripAdvisor, Inc. (TRIP)
TripAdvisor posted a notable loss on the week, spurred lower by an analyst downgrade. Cowen cut its rating on the stock from Market Perform to Underperform. The company noted that the "meta wars" will lead to profit declines, as the company is forced to invest in brand ads to stop loss of market share. The note prompted a steep drop during Wednesday's trading and the losses continued on both Thursday and Friday. The stock finished out the week at $42.58, down nearly 10% from the close of $47.06 it posted the previous Friday.
With the loss on the week, unhedged 25-Delta Put bets for TRIP returned an average gain of +1,138.2%. The average return for an unhedged ATM Straddle bet was +252.4%.
Hedging was a good move for 25-Delta Call positions, helping to limit losses there. It had the opposite effect for 25-Delta Put bets, however, exacerbating losses when used for those positions. Hedging had little impact on ATM Straddle positions.
For 25-Delta Call positions, unhedged bets had an average loss of -48.4%. This was cut to -15.4% for single hedging and to -28% for daily hedges. For 25-Delta Puts, single hedging expanded losses, from -19.4% for the unhedged position to -46.4% for once-hedged bets. The impact was less severe for daily hedges, where the average loss for the week was -36.5%.