In this study we examine how the S&P 500 has historically performed on and around option expiration. We test the market bias from 1983 which is when the CBOE started trading index options on the OEX aka S&P 100 and SPX aka S&P 500. All entries are based on the opening price of the S&P 500 futures and exits are based on the closing price.
The table below shows the historical performance statistics of option expiration Fridays, option expiration Fridays when the S&P is higher from the prior day ( close to close), option expiration Fridays when the S&P is lower from the prior day (close to close) and as a comparison the performance statistics of all Fridays and all Fridays except option expiration Fridays. All results are based on 1 contract trades since 1983, entries are at Fridays open and exits are at Fridays close.
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The average trade on an options expiration day lost -$307 as a comparison when buying at the open and selling at the close on any given Friday that is not an option expiration, the average trade lost -$28. This suggest that option expiration Fridays have a negative bias when compared to all other Fridays.The next table shows the historical performance of the S&P on an option expiration Friday after the market has been down by x% in the preceding week from the Fridays close to Thursdays close before expiration Friday. Column l-1 represents the x% change in the preceding week.
The table below shows the historical performance of the S&P on an option expiration Friday after the market has been UP by x% in the preceding week from the Fridays close to Thursdays close before expo Friday. Column l-1 represents the x% change in the preceding week.
Based on the statistics in the tables presented above it appears that the S&P has a bias to close on option expiration Fridays in the same direction as the previous days close and or the previous weeks action.Subscribe to RipeTrade, details here!
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9 comments:
I'm intrigued by this, especially that first table. Perhaps I'm missing it, but what was the size of each trade, and were they all on the SPY?
Thanks.
WideMoat
The trade size was based on 1 large futures contract. which is the equivalent to $250 per S&P point move or 250 shares of cash index or 2500 shares of the SPY.
interesting trend. Curious if you have looked at the direction of expo fridays as an indication for the following month.
I have not. I think it probably has more of a short term influence. It would be easy enough to test.
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