Trading Strategies for Futures Expiration Week in DAX 40 and Euro Stoxx 50 – Backtest Insights and Trading Rules
Trading Strategies for Futures Expiration Week. Our backtests indicate that both DAX 40 and Euro Stoxx 50 have much better performance during the futures expiration week compared to any other random week.
Let’s start with the DAX 40 contract:
DAX 40 futures contracts expire four times per year: the third Friday of March, June, September, and December.
The contract is one of the most traded contracts on the planet and is an important trading vehicle for thousands of traders. We trade the contract ourselves.
Key Takeaways
- Futures expiration week shows stronger market performance
- DAX 40 performs better than random weeks
- Euro Stoxx 50 shows smaller positive effect
- December delivers strongest expiration week returns
- Expiration weeks have higher volatility and activity
- Week after expiration often shows weaker performance
- September tends to be the worst-performing month
- Strategy involves buying before and selling at expiration
If you are not familiar with DAX 40 we recommend a primer on the index contract:
The expiration weeks in the US
Because the expiration of both options and futures contracts is a significant event, it triggers movement both in the derivatives and stock markets. We have previously covered the options expiration weeks in the USA:
Trading the futures expiration week in DAX 40
Today we test the performance of the expiration week:
Trading Rules
You find the trading rules at the bottom of the article
This is the equity chart of the strategy:
The average gain is a positive 0.39% and the win ratio is 57%. The gain is 0.12% any random week.
If we break it down to quarterly performance we get this result:
All months show better performance than any random week while December is by far the superior one. However, the Santa Claus Rally in DAX 40 might be the reason for that.
Euro Stoxx 50
Let’s continue with the Euro Stoxx 50 contract:
Just like the DAX 40 futures contracts, the Euro Stoxx 50 contract expires four times per year: the third Friday of March, June, September, and December. The contract is heavily traded and we trade the contract ourselves.
If you are not familiar with the Euro Stoxx 50 we recommend a primer on the index contract:
We backtest the contract the same way as we did with DAX 40 and get the following result for all settlement months:
The average gain is a positive 0.3% and the win ratio is 54%. The gain is 0.18% any random week.
Thus, the expiration week effect is smaller.
If we break down the performance for each quarter’s respective month we get this table:
As expected, December is the best, while June is, on average, a big loss.
Let’s sum up both contracts and conclude that there seems to be a positive futures expiration week effect in both DAX 40 and Euro Stoxx 50.
Trading the week after futures expiration in DAX 40
Let’s look at the performance of the DAX40 after the futures contracts have expired. DAX 40 was changed in 2021 from DAX 30 and is one of the most heavily traded futures contracts in the world. The contracts expire on the third Friday of the last month of each quarter: March, June, September, and December.
Trading the week after futures expiration in DAX 40
Let’s test the performance of DAX 40 after its futures expiration. We backtest the futures contracts, but we don’t use a futures backtest. Instead, we use a 100% margin.
100 000 is invested in March 2000 and reinvested into the next quarterly futures expiration week. Thus, there are four trades a year. We invest at the close of the Friday when the futures contracts expire, and we hold for one week and sell at the close the next Friday. No commissions or slippage.
This is the equity chart of Dax:
The average gain is a negative 0.1% and the win ratio is a low 47%.
Is there any difference depending on the month? Let’s find out:
- March: 0.23%
- June: -0.39%
- September: -1.59%
- December: 1.49%
September and March are pretty good, while June is a small loss. September is, just like in the US, by far the worst month. September has only been profitable 25% of the time.
FAQ
How does trading during the expiration week impact the markets?
The markets are more volatile during expiration week because of “pin” risk.
How is the DAX 40 expiration week performance backtested?
We backtested by going long from the close of the week before and selling at the close of the options expiration week.
Which months show better performance in DAX 40 and Euro Stoxx 50?
The best month is December, while March is second, June third, and September last with the only losing month.
Why should one consider trading the DAX 40 futures?
You should consider trading the DAX40 contract because of its high trading volume which makes it attractive to traders. Understanding the performance patterns, especially after futures expiration, can provide insights for potential trading strategies.
How does the week after futures expiration in DAX 40 perform historically?
The week after futures expiration performs poorly with average losses. However, December and March are positive, it’s September that is really bad.
Is the backtest conducted using futures backtesting or another method?
The backtest for DAX 40 after futures expiration is not conducted using futures backtesting. Instead, it employs a 100% margin investment strategy with four trades per year, coinciding with the quarterly futures expiration weeks.