Studies - Posted on Monday, September 13, 2010, 7:06 PM GMT +1

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Sep Monday 13

Option Expiration and Triple Witching Weeks

Today, Monday, September 13, marks the first business day of September’s option expiration week, at the same time ‘Triple Witching‘ (stock index futures, stock index options and stock options all expire on the 3rd Friday of March, June, September and December of every year). This gives good reason to check for the market’s historical performance during option expiration, especially triple witching weeks in comparison the market’s historical at-any-time daily and weekly performance.

(If you’re interested in a short summary only, please click here)

Table I below shows the S&P 500‘s historical performance (since 1974; in 1973 standardized exchange traded call options were released for trading by the Chicago Board of Options Exchange (CBOE) and the Options Clearing Corporation (OCC)) …

  • Strat. #1 (TW Sept.): during September‘s option expiration (triple witching) week,
  • Strat. #2 (TW not Sept.): during any other triple witching week, except September (option expiration in March, June, and December),
  • Strat. #3 (TW all): during any triple witching week (option expiration in March, June, September and December), and
  • Strat. #4 (OE not TW): during any non-triple witching, option expiration week (means excluding March, June, September and December).(during … week means: assumed one went long on close of the last session of the week immediately preceding option expiration week – regularly a Friday -, and went back into cash on close of option expiration)

Table II below shows the S&P 500‘s respective periodic (weekly, monthly, quarterly, annual) returns (since 1974) for those setups listed above.

Conclusions:

Basically the S&P 500 shows a positive bias during option expiration weeks (‘OE not TW‘ and ‘TW all‘), and performs especially well during triple witching weeks (above-average probability for a higher daily and weekly close, an above-average median daily and weekly return, and a below-average historical volatility).

Although with respect to periodic (weekly) returns September’s triple witching week shows a positive bias as well (weeks positive: 61.11% and a median weekly return of +0.66%), the S&P 500 experienced a couple of considerable down-days during September’s past triple witching weeks. The median winning trade is the lowest, and the median losing trade and (annualized) realized (historical) volatility are the highest among all setups. Therefore September’s (option expiration week’s) lowest and below-average daily distribution of returns and profit factor as well among all setups.

With respect to option expiration and triple witching weeks, I’ll take a deeper dive into daily stats (which days preceding / following option expiration are especially favorable, among others) in a future post. Stay tuned …

Successful trading,

Frank

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Disclaimer: No position in the securities mentioned in this post at time of writing.

Remarks: Due to their conceptual scope – and if not explicitely stated otherwise , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in, do not use leverage (e.g. leveraged ETFs) but a marginable account is mandatory , do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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