Options Backtesting Research

Mar 24

XBI put volume explodes 5x above normal

Options traders are betting on biotechnology declines over the next two months in large size. With XBI implied volatility at three year lows, the put options selected by these traders are historically inexpensive. But like most hedging strategies, they have negative options backtesting results as they generally lose money over long time horizons. The maximum historical payout for these hedging trades would be 6x premium paid.

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Mar 21

Options traders expect a 5% Nike price move after earnings

Options traders are pricing in a 5% move in Nike's stock after they report earnings tomorrow. This is nothing unusual as options traders have priced in an earnings move within the tight range of 4-6% since 2012. Options backtesting shows that selling volatility in advance of their earnings has generally only been a mildly profitable strategy.

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Feb 23

Cheap U.S. equity protection through consumer discretionary stocks

Put options on XLY, the main consumer discretionary ETF, are unusually cheap and present an attractive U.S. equity hedging strategy due to its correlation and beta to the S&P 500. Options backtesting analysis at today's pricing shows positive historical returns, which is often unheard of for hedging strategies. These backtesting results are only positive because of how cheap implied volatility is right now on XLY relative to its historically realized moves, even compared to other sectors and macro ETFs.

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Jan 23

Put writing bright spot: CDK Global

With macro implied volatility continuing near recent lows, there are only a few bright spots for put sellers. Our put writing screening technology highlights CDK Global today as having particularly attractive options backtesting results. Click through for the details.

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Jan 17

Netflix Q4 earnings - options traders expect a 10% stock move

Netflix announces Q4 2016 earnings after the closing bell tomorrow, and options traders are expecting a 9.6% move through the end of the week. Over the last two years, the expectations for an earnings move have been in the 10-17% range, so this reading is on the lower end of what has been expected in the past. Since 2010, Netflix has also generally moved more than this 9.6% expectation, leading to positive options backtesting results for buying a straddle going into the announcement.

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Jan 13

Apple call options are the cheapest in 8 years

Apple call options for Q2 expiration are currently trading at their cheapest levels using historical data back through 2009. Apple stock has rallied 9% since the election and broke through a few key resistance levels. If you're expecting the breakout to continue, call options like this trade could be an attractive risk-defined way to play further upside. Options backtesting of this trade shows a 0.57 Sharpe ratio with contained downside risk.

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Jan 3

Brazil offers the cheapest macro upside call options

The Brazilian stock market is up 65% over the last year but down 40% over the past five years for U.S. investors (dollar denominated). Many are betting that the recent rally will continue as oil prices rebound and governmental reforms are promised by the new administration. The MSCI Brazil ETF (EWZ) currently offers the cheapest upside call spreads across macro equity markets. This trade has positive options backtesting results using historical data since 2000.

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Dec 28

Volatility sellers turn to homebuilders ETF

Rising interest rates are creating increased uncertainty around real estate prices and prospects for growth in the housing sector. Increased implied volatilities in homebuilder ETF XHB options creates interesting opportunities for put option sellers looking to collect more attractive premiums than broader market ETFs are currently providing. Our options backtesting suggests that the market is overpricing the uncertainty in homebuilders compared to what history would suggest.

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Dec 22

Mondelez shareholders: consider covered calls today

Mondelez has been range bound from $40-$47 since mid 2015 while implied volatility and call prices are near highs today. Short-dated covered calls have very attractive options backtesting results due to the combination of low realized volatility and high implied volatility. Adding covered calls to a portfolio with MDLZ stock could add extra income for the investor.

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Dec 8

Covered calls - Ensco PLC

Options backtesting of covered calls on the top 50 energy stocks highlights Ensco PLC as the most historically profitable underlier today. Filter the Covered Calls screen on our Dashboard by the energy industry to see all of the options analytics.

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