Daily Commentary - Posted on Saturday, December 10, 2011, 11:03 PM GMT +1

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Dec Saturday 10

December OpEx Week

Next week will be OpEx week (options expiration), and the week leading up to December options expiration has historically been quite positive.

Table I below shows all occurrences (since 1974) and the S&P 500 performance over the course of December OpEx week, assumed one went long on close of the final session of the preceding week (in this event on Friday, December 9). The S&P 500 closed at a higher level on options expiration (in this event on Friday, December 16) in 9 out of the last 10 and 18 out of the last 22 years, indicating that performance has been significantly better during recent years (the S&P 500 closed at a lower level on options expiration in 7 out of the first 10 years since standardized exchange traded call options were released for trading by the Chicago Board of Options Exchange (CBOE) and the Options Clearing Corporation (OCC) in 1973).

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Taking into account the fact that the S&P 500 is up week to date and month to date, but still down year to date on Friday, December 9, table II below shows all occurrences (since 1974) and the S&P 500 performance over the course of December OpEx week, assumed one went long on close of the final session of the preceding week (in this event on Friday, December 9) in the event the S&P 500 had been up week to date or month to date, but still down year to date on the trigger date.

Interesting to note that the S&P 500 closed at a higher level (compared to the trigger day’s close) on Tuesday (‘2 sessions later‘) during December OpEx week (at the latest) on all six occurrences (please note: this time the table below shows daily returns instead of cumulative returns, and returns on Monday – next session – have to be accounted for as well; the regular table with cumulative returns would’ve shown ‘2 sessions later‘ being up on all six occurrences), but (taken into account those conditions mentioned above) Thursdays during December OpEx week show a notably week tendency, with up to now six out of six down days.

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Conclusion(s)

The trend remains up, and I expect the S&P 500 to be higher on Tuesday, December 13 and Friday, December 16 than they closed on Friday, December 9.

A favorable buying opportunity might be presented in the event of a (short-term) pullback (if any) on Monday targeting a higher close on Tuesday, and a potential short might be triggered (but that’s a different story) on close of Wednesday’s session targeting lower prices on next Thursday.

Have a profitable week,

Frank

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

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Remarks: Due to their conceptual scope – and if not explicitly 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), 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). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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Disclaimer

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.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock and Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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