Profitable Facts About The Options Expiration Day (Trading The OPEX Day)
The options expiration week effect is well known but very little research can be found online about the specific options expiration day. Let’s dig a little deeper and find out some specifics (and profitable) about this day.
Has the option expiration day been good or bad for stocks?
What is the options expiration day?
US stock and index options expire on the Friday before the 3rd Saturday each month. Four times per year, on the last third Friday of the quarter, we have triple expiration days because of the expiry of futures contracts.
There are only three exceptions to the rule of the third Friday: Good Friday, Independence Day, and Christmas). When the third Friday is one of those three days, the expiry is on Thursday – the day before Friday.
Options expiration day – backtest no.1:
How does the options expiration day perform?
Trading Rules
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The first test we do is to buy the close of the day before the options expiration day (Thursday) and sell on the close of the Friday, ie. we hold for one day.
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We use the S&P 500 as a proxy for stocks and test SPY from inception in 1993 until today.
This is the equity curve (100 000 compounded):
The average gain is a negative 0.06%, and the win ratio is about 51%, in stark contrast to the positive tailwind of 0.04% on any random day over the same period. (The overnight trading strategies are a nice trading edge to employ in trading.)
Furthermore, it doesn’t help to differentiate between the months, either. It seems all months are weak except November. Perhaps that is because of the