Daily Commentary - Posted on Wednesday, January 18, 2012, 9:38 PM GMT +1

1 Comment


Jan Wednesday 18

Multi-Month High during OpEx Week

Up to now major market indices defy all (seasonal) odds (hitting a fresh multi-month high on Wednesday, January 18), with SPY‘s (S&P 500 SPDR) closing out the week including the Martin Luther King, Jr. Day exchange holiday with a loss in 10 out of the last 14 years since the holiday was started in 1998.

But this week is option expiration (OpEx) week as well, and the the SPY‘s (S&P 500 SPDR) shows a statistically significant (to say the least) tendency to reverse course until and at OpEx when closing at a 3-month high during the week before OpEx in the past.

Table I below shows the SPY‘s (S&P 500 SPDR) performance (since 1988) one, two, and three sessions later, followed by option expiration (OpEx) Friday and at the end of the month assumed one went long on close of a session where the SPY closed at an at least 3-month high at any time during option expiration week.

Besides the fact that the SPY shows a significantly above average probability for closing at a lower level on OpEx Friday (on 50 out of 84 occurrences since 1988), it is especially remarkable that upside potential had been more or less non-existent (quite the opposite applies to downside potential). The SPY closed higher 1.0%+ on OpEx only once (max. gain +1.04% in May 1989), but lower -1.0%+ on 22 out of 84 occurrences (months).

In addition, the SPY closed lower the next day (in this event on Thursday, January 19) on two out of every three occurrences (thereof on 13 out of the last 16, with a max. gain +0.54% out of the last 40 occurrences), up 1.0%+ only once, whilst lower -1.0%+ on 10 occurrences.

(click on image to enlarge)


Table I
SPY closing at a 3-month high during OpEx week

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Conclusion(s)

For the time being the trend is up, and everything seems possible, but 84 occurrences (since 1988) is quite an impressive sample size to bet against …

Have a profitable week,

Frank


Disclosure: No position in the securities mentioned in this post at time of writing.
(Short DAX German Aktien Index)

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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)

Comments (1)

 

  1. GT says:

    SPY :130.77 Wed18Jan
    131.46 Thu19Jan +0.69 or +0.53%

    131.54 Fri20Jan + 0.08

    Fri: + 0.77 or + 0.59% for 2 trading days post trigger.
    Election year cycle is throwing off normal years correlations.
    Can you expand on your post of 4th year Election year cycles? Need more data please. thanks.

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