In a previous post we looked at a shorting strategy based on the monthly options expiration day. We showed that when the monthly options expiration day (Friday) was down, the following day (Monday) tended to also be down; enough so to make a shorting strategy worthwhile. In this post, we’ll show that this strategy (while still effective) has been losing a bit of its punch over the last few decades.
The table above shows average returns broken down by decade for the day-after options expiration days, the day-after positive expiration days, and the day-after negative expiration days. Geek note: to remove the influence of bullish vs bearish decades, we’ve normalized the results here by subtracting the average of all daily returns for the decade.
What is this table showing us? The day-after options expiration has been consistently bearish over the last four decades (column 2), and consistently more bearish when the day of options expiration was down than when it was up (columns 3 vs 4). However, this difference (column 5) has been declining over the last four decades, indicating that the day-after options expiration is as weak as ever, but whether or not the previous Friday has been down or up has been less important.
Like a lot of time-based strategies (think the “January Effect”), this Friday-to-Monday connection might be losing some of its punch as more traders exploit it.
[Edit: click for more recent follow up to this post]
Happy Trading,
ms
Filed under: Options-Expiration, Time-based, Trading Strategies | Leave a Comment
-
Subscribe to RSS Feed
Subscribe via Email
My email: michael @ marketsci.com (remove spaces)
No Responses Yet to “Consistency of the Day-after Options Expiration Strategy”