In a recent study, we conducted an in-depth analysis of option straddles in S&P 500 stocks, uncovering a remarkable performer over the past 12 weeks—Procter & Gamble (PG). In this blog post, we'll share the fascinating insights gleaned from this study and explore how these findings can empower you to make informed trading decisions.
Analyzing the Data:
Our study involved examining the performance of option straddles placed on Mondays at 10 am, with daily delta hedging at the end of each trading day. We evaluated the performance based on the closing prices on Fridays, providing a comprehensive snapshot of the weekly gains. The study was performed on S&P 500 stocks.
Option Straddle Performance- Delta Hedging
Consistency in Profits:
Among the various S&P 500 stocks, we identified five top straddle performers that showcased remarkable consistency in profitability, boasting an impressive 83% win rate over the last 12 weeks. Procter & Gamble emerged as the star performer within this elite group.
Impressive Returns:
Over the 12-week period, Procter & Gamble demonstrated exceptional returns, averaging an impressive 30% gain per week. The median return for PG stood at +34%, highlighting the consistent profitability of the selected option straddle strategy.
Exploring the Range of Returns:
In addition to analyzing the average returns, we also compared the best and worst returns recorded by Procter & Gamble over the 12-week timeframe. The results revealed a remarkable best return of 83%, showcasing the potential for significant gains. However, it's essential to acknowledge that even successful strategies can experience downturns, as evidenced by the worst return of -27% for PG during this period.
Reward-Risk Ratio:
Assessing the risk-reward profile of Procter & Gamble's option straddle strategy, we examined the ratio of average returns to standard deviations. The data indicated that PG exhibited a compelling reward-risk ratio, approaching a value of 1. This finding suggests that the strategy generated attractive returns while maintaining relatively low levels of volatility.
Implied Volatility and Gamma Trading:
Furthermore, our analysis revealed that Procter & Gamble's implied volatility tended to be priced relatively low, making it an intriguing candidate for delta-neutral gamma trading strategies. While past performance does not guarantee future results, these findings provide valuable insights and raise intriguing possibilities for traders seeking potential opportunities in the market.
Conclusion:
The Market Chameleon tool has allowed us to screen and conduct a comprehensive analysis of option straddle performance, with Procter & Gamble emerging as the top performer in S&P 500 stocks over the past 12 weeks. Its high success rate, impressive average returns, favorable reward-risk ratio, and suitability for delta-neutral gamma trading strategies make it an intriguing stock to watch. Remember, trading always carries inherent risks, and it's crucial to exercise caution and conduct thorough research before making any investment decisions.
Disclaimer: The information provided in this blog post is based on historical data and does not guarantee future performance. Options trading involves risks, and individuals should consult with a financial advisor before engaging in such activities.
