Seasonality option trading
Contents:
Federal Open Market Committee Meeting Effect in Stocks — dates of FED meetings are publicly known and available, the simple execution of this strategy could be made by buying ETF on a close day before the meeting and selling it on the close after the meeting. Option-Expiration Week Effect — is connected with the Option-expiration week — a week before options expiration Friday before each 3rd Saturday in each month.
The Payday Effect — very similar to the Turn of-the Month ToM anomaly, a strategy that utilizes this effect consists of buying the ETF on close on the 15th day each month and selling it on close the next day. We would like to point out that deeper insight into calendar strategies is in the previous article. When the dates of strategy ETFs rebalancing are known, we can move into the momentum block of the strategy. As a first step, we have computed momentum for all ETFs with three lookback periods.
To be more precise: 63, , and days momentum, what is approximately 3 months, 6 months, and 12 months. For diversification purposes and robust strategy naturally, the strategy would be profitable if we would use only one momentum indicator , it is favorable to use more momentum indicators. As a next step, we are ranking each ETF according to its momentum each day. Therefore, we might not trade the whole portfolio every time. Of course, there is a possibility to use a different time period for computation of moving average or even use more moving averages, but we did not want to make the strategy unnecessarily complex.
EEM is ignored because it is underperforming.
Seasonal Stock Market Trends: The Definitive Guide to Calendar-Based Stock Market Trading
In the examination of the proposed strategy, we are directly comparing this approach to our previous simple calendar strategy first paper in the references. Obviously, the enhanced strategy is able to outperform a simpler strategy based only on the SPY without the momentum factor the calendar strategy from the previous blog post.
There could be easily seen a steeper ascent in the equity curve during various periods and also periods where the MA of SPY signaled to stop trading, and yet, our strategy was able to gain equity. This is possible by additional ETFs.
An additional insight into the risk of the strategy could be easily gained from the drawdown chart. Such a result shows that another building block can be successfully added, resulting not only in better performance but also in slightly lower drawdown. Intuitively, it should be clear that the usage of ETFs is connected with low transaction costs, and strategy with such return should easily survive costs.
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Naturally, the return is lower, but it is important to bear in my mind that the strategy is invested in the ETFs only during a small part of a year. We have successfully shown that the calendar strategy presented in the previous paper can be even more refined and enhanced to obtain better performance. The three momentum strategies used are used for ranking, which ensures that the most profitable ETF in the recent period is chosen.
According to the momentum theory, the aforementioned should translate into outperformance in the near future. Are you looking for more strategies to read about? Do you want to see performance of trading systems we described? Do you want to know more about us? Join our Facebook Group.
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Precious metals' seasonality:
Tags alternative data asset class picking beta factor equity long short factor allocation factor investing forex system fundamental analysis fund picking market timing momentum momentum in stocks own-research seasonality small cap smart beta stock picking trendfollowing value volatility effect. Blog Sponsor. Before you look at the Seasonality chart for insight, consider making two settings adjustments to it. To make the chart a percentage chart, select the gear icon at the top of the page. From here, select the Price axis tab, check the box Show price as percentage , and then select apply.
The first line, shown in red see Figure 1 , indicates the performance of the displayed security over the selected time span indicated at the top of the chart, which is 10 years in this case. From this line, you can see month-to-month how it performed on average via a percentage basis. Source: thinkorswim platform. For illustrative purposes only. Past performance does not guarantee future results. As shown in Figure 1, stock XYZ performed significantly better during the last few months of the year than the rest of the year.
Such a result shows that another building block can be successfully added, resulting not only in better performance but also in slightly lower drawdown. The effect of April 15 Tax Deadline moved to May 17 for appears to be diminished with numerous bullish days present on either side of the day. Join our Facebook Group. The JayNewary Barometer. Decade-by-Decade Performance. Next, we have refined the strategy and added a filter in the form of a trend signal. Measuring Market Performance throughout This Book.
Overall, the stock is averaging approximately an 8. In other words, there appears to be relatively strong seasonality in XYZ stock. Although almost all stocks will show some variation in performance throughout the year, for most stocks, the difference between months will be much more subtle. To this point of this year, stock XYZ Why do some stocks show seasonality? Warm weather sports manufacturers will likely sell more during the summer months. Many retailers do particularly well during the holiday shopping season.
Stock Option Momentum and Seasonality
However, just because a company sells more during a particular time of the year does not mean it will necessarily translate to a strong stock performance during that time of the year. So, armed with this information, how might investors or traders use it in the market? First, remember using Seasonality charts should most likely be just one aspect of a larger investing plan. A fundamentally poor stock is probably a bad choice no matter what month of the year you buy it. Long-term traders may choose to buy an otherwise good prospect at a period where better performance is anticipated.
This is analogous to a runner trying to get a quick start out of the blocks.
Seasonality refers to recurring patterns in asset classes, often due to a time of the year impact. For example, summer may push up the price of crude of oil as. Those new to the world of options are often confused by the seasonality patterns that overlie option trades. These cycles occur both within each.
For shorter-term traders, a similar approach can be used, such as setting up a particular exit for the stock. Once you try out Seasonality charts, you may find that they become a welcome addition to your investing toolbox. While there are no black box solutions to trading success, finding tools such as Seasonality charts may help smooth the path to your investing success. Not investment advice, or a recommendation of any security, strategy, or account type.
Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.
Clients must consider all relevant risk factors, including their own personal financial situations, before trading. Successful virtual trading during one time period does not guarantee successful investing of actual funds during a later time period as market conditions change continuously. Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.