Stats on Post Expiration

Discussion in 'Trading' started by bentedges, Jun 15, 2009.

  1. I thought I would post a few stats on post option expiry that may help a few with their daily or weekly trading bias.

    Many know the following Monday after option expiration tends to have a negative bias. I wanted to test that and give a few concrete numbers.

    For the backtest, I used the S&P proxy, SPY.

    Going back to 1988, if one bought ANY open on the Monday following expiration and held it for the day and sold it at the close, the trade only worked 38.8% of the time (99/255) with an average trade of -0.15%. The average win and loss were very close. The largest win was +4.42% with the largest loss -4.63%. If one held the trade for the week and sold it on the friday close, it still had a negative expectancy with a win rate of 48.6%. The average trade yielded -0.2%, with the average winner being 1.36% and the average loser coming in at -1.72%. The largest winner was +7.25% and the largest loser was -8.24%.

    If we tried to define it a little better with the look of today's open, we come up with these stats:

    On a post expiry where the SPY is gapping down between 0.3% and 3.0%, and we bought the open to hold for the day, the results weren't any better. The win rate was 38.9% (14/36) with an average loss of -0.28%. The largest win was +2.41%, while the largest loser was nearly twice that at -4.35%. Holding the trade for the entire week improved performance to a win rate of 55.6% with an average profit of +0.14%. Largest win of 4.64% and largest loss of -4.44%. Really no edge any more than random here.

    If we use the same gap down criteria but add one more filter in that the 200 day moving average is still sloping downward, things don't look so hot. The trade only works 4/13 times (30.8%) with an average trade of -0.85% when held for the day. Again the largest loser was nearly twice the largest winner. When held for the week, the expectancy improves to 53.9%, but with an average of -0.28%. Not good.

    Ahh you say, but even with a 200 day moving average that is downward sloping, price is still above that 200 day moving average. I tried to test this, but in no instance since 1988 can you find an time when we were gapping down at the open, there was a downward sloping 200 day MA, and where price was ABOVE that moving average. It just goes to show how far and fast this rally has come relative to others in the past.

    About the closest I could come with that was using ANY open along with those above parameters, which gave us 4 trades when held for the day. All 4 were losers with an average of -0.6%. Holding for the week got you to 50%, but still had a negative expectancy.

    In sum, even with the SPY currently indicated to open down about 1.2% where I would generally fade it and buy it, in this case my bias will remain negative and I may use any bounce from the opening gap down to short it.

    Just my 2 cents.
  2. Nice analysis, I guess. I didn't understand most of it except for the last paragraph. It's good you came down to where a layman would understand.

    Anyway, I shorted the market Friday morning and I got reassured of my decision by Carl Swenlin of He mentioned that there's a bearish ascending wedge, and there's a great likelyhood that we're going to go down.
  3. don't options expire this coming Friday?
  4. You're absolutely correct. Got my dates mixed up, my bad. Well, at least it's out there should the situation present itself next monday.