Option Trading Strategy Results: 06-Jan-2017 Weekly Expiration

Jan. 09, 2017 9:12 AM ETMETA, M
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Contributor Since 2016

Market Chameleon is a web site for stock and options traders featuring tools, analytics, information and data feeds that will give you new insights into the markets.

Generally speaking, it was another tough week for volatility buyers in the options market for the weekly expiration 06-Jan-2017. Winners paid off well on the call side, though finding winners was a challenge. For puts, the week represented a disaster for those buying volatility, with just over 1 in 20 bets paying off.

Stocks drifted higher through the week, with the Nasdaq and S&P 500 setting new record highs and the Dow flirting with the 20,000 mark. Stocks gained on Friday, despite a disappointing employment report, and recorded gains for the first week of 2017.

For the week, unhedged At-the-Money (ATM) Straddles came back winners just 34.8% of the time, with only 7.2% of those making more than +100% return. The average return was negative for the week, at -14.3%. 25-Delta Calls only returned winners 30.1% of the time, but had a much better payout. With 25% of the winners scoring returns of more than +100%, the average payout for the strategy was +44.9%.

For 25-Delta Puts, the situation was bleak for buyers. The strategy returned a winner just 5.7% of the time and the average loss was 77.0%.


Macy's (M)

Shares of department store chain Macy's dropped off a cliff on Thursday, hurt by lowered guidance and the news that the company would be closing stores and cutting 10,000 jobs. The stock closed Wednesday's session at $35.84 and then opened sharply lower the following session once the restructuring news was announced. The stock finished out the week at $30.82.

Unhedged 25-Delta Puts for M had an average profit of +726.2%. Meanwhile, unhedged ATM Straddles returned +126.3%.

Facebook (FB)

Facebook advanced throughout the week, finishing higher in every trading session so far in 2017. The stock closed 2016 at $115.05. After the string of gains, it finished off the first week of 2017 at $123.41. The advance was helped by some positive attention from analysts and the financial media. Aegis Capital gave the company a Buy rating and a price target of $150, while TheStreet.com published a story touting the stock's upside potential, called "Why Facebook's Stock Could Easily Pop 30%."

Unhedged 25-Delta Calls for FB had an average return of +1,357.4%. Unhedged ATM Straddles had an average return of +201.9%.

Hedging Comparison

Hedging was a helpful strategy for puts during the week, allowing traders to cut their average losses significantly. However, it hurt calls, turning an overall positive return into a negative one. For ATM Straddles, hedging almost literally made no difference.

For 25-Delta Puts, the average loss for an unhedged position was -77.0%. Hedging once cut this to a loss of -17.7%. Daily hedging was not as helpful, but still significantly softened the blow compared to a completely unhedged position. Daily hedged 25-Delta Puts had an average loss of -22.6%.

For 25-Delta Calls, a positive return of +44.9% for unhedged positions became a negative one of -23.8% with a single-hedged position. Daily hedging had an average loss of -14.9%.

For the ATM Straddle position, hedging had almost no effect. Unhedged, single-hedge and daily-hedge positions all had average losses between -14.1% and -14.8%.


posted from the original: https://marketchameleon.com/Blog/post/2017/01/09/option-trad...

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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