Options Backtesting Examples

Dec 2

Biotechnology implied volatility and skew rises

XBI implied volatility has risen to the 85th percentile and put skew is above the median. Options backtesting of this particular sold put shows a 0.50 Sharpe ratio, an attractive opportunity for longs comfortable adding more exposure at lower prices.

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Nov 22

Materials (XLB) implied volatility drops the most among 10 S&P sectors

S&P Materials (XLB) implied volatility just hit its lowest point over the past year while every other major S&P sector remains above the 15th percentile. With the prospect of increased infrastructure spending on the horizon next year, XLB call volumes have risen considerably. Options backtesting for this particular XLB strategy shows positive historical returns at today's cheap pricing with further potential upside if infrastructure spending is realized.

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Nov 21

Netflix covered calls are attractive today

Covered calls on Netflix are currently offering unusually positive historical returns. Volatility's options backtesting calculates a 0.51 Sharpe ratio with 69% of the historical trades being profitable. Upside call implied volatility is currently in the 40th percentile. Selecting the right strikes and maturities through backtesting optimization is important for Netflix given its propensity for large, sudden moves.

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Oct 27

Exxon options expect a smaller than usual impact from earnings tomorrow

Options on Exxon are pricing in just a 2.2% move over the next week after third quarter earnings are released tomorrow. This compares to the 3.1% expected before second quarter results in July. Options backtesting of earnings straddles shows that they would be historically unprofitable at present pricing as Exxon's average earnings move was 2.7% since 2010.

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Oct 10

Crude oil call spreads are the cheapest since winter 2015

As crude oil breaks out of the $50 level, implied volatility has dropped and call skew has increased, creating an environment for the cheapest upside call spreads since 2015. With favorable options backtesting results, call spreads may be attractive for those expecting the breakout to continue.

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Sep 29

Amazon call options offer attractive risk/reward ratios

As Amazon stock has surged 16% in the past three months, many investors are hesitant to add exposure at these valuation levels. However, specific call options now present attractive risk/reward ratios compared to owning shares outright due to historically low implied volatilities today. The calls retain upside exposure and have positive options backtesting results.

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Sep 27

Covered calls on technology stocks

Call options on technology stocks are trading near their lowest levels over the past couple years. Options backtesting across the sector shows that covered call strategies are often hurting technology portfolios more than they are helping. Alibaba is one of the only tech stocks where covered call strategies continue to be attractive. Login to view the trade details.

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Sep 14

Delta hedged straddles on U.S. real estate ETF IYR

Implied volatility on IYR, the U.S. real estate ETF, has risen to the 86th percentile over the past week as we lead into next week's Fed meeting. Options straddles are pricing in a 4.5% move in the ETF after the announcements from the meeting. A backtest of selling those straddles delta hedged shows an 88% chance of success.

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