Analyzing Recent Week-by-Week ATM Straddle Results
has sifted through the last 12 weeks of at-the-money option straddle returns to find symbols that had the most consistent positive performance to enhance your trading portfolio.
Over the most recent 12-week period, MarketChameleon has detected 18 stocks with unhedged option straddles that had historical win rates of over 60%, average returns of better than +10%, and median returns of greater than +10%.
Within the same time frame, we found 17 stocks that had straddles that met those conditions when the straddles were hedged only once at the initial trade delta and then held for the remainder of the week.
If we change the hedging technique to re-hedge the delta at the end of each day, we discovered 12 symbols that met those same conditions.
Among the symbols analyzed, using the unhedged
delta results, CVS
had notable returns -- a 75% win rate with an average weekly return of +75%. When looking at hedged-once
straddle performance, XLU
had a 75% win rate and an average return of +41%. A standout from the results of the hedged-daily
straddle analysis, TOL
had a 83% win rate and an average return of +28%.
The objective of this analysis is to backtest potentially undervalued (or overvalued) option straddles with high historical win rates and the best average returns over a period of 12 weeks. The benefit of buying long straddles is that the risk is limited while the potential profit is boundless. Long straddles also offer protection against increasing volatility and sudden market moves.
We analyze at-the-money option straddles for each symbol's nearest expiration, and compare the value of the straddle from the initial value on Monday morning to the closing value on Friday afternoon. It would be considered a "win" if the theoretical trade increased in value from the opening to the closing. Additionally, we provide the flexibility of multiple hedging strategies -- first would be unhedged
, which is a naked option straddle with no stock attached; then hedged once at time of trade
, which is a delta-neutral
straddle hedging the net deltas at the time of the trade and then holding until close; and last daily re-hedged
, which also hedges the net delta at the end of each day through the week.
Using the Report
Stock and option trading involves risk may not be suitable for all investors. Examples contained within this newsletter are simulated and may have limitations. Average returns and occurrences are calculated from snapshots of market mid-point prices and were not actually executed, so they do not reflect actual trades, fees, or execution costs. This newsletter is for informational purposes only, and is not intended to be a recommendation to buy or sell any security. Neither MarketChameleon nor any other party makes warranties regarding results from its usage. Past performance does not guarantee future results. Please consult a financial advisor before executing any trades.
Note: selling options can result in losses of greater than 100%. Average returns from selling options is calculated based on net change in value against the initial theoretical option value. Prior to buying or selling an option, you should read the Options Clearing Corporation's Characteristics and Risks of Options