Trading The Week After Options Expiration Week

Last Updated on October 16, 2021 by Oddmund Groette

The options expiration week is on the Friday before the third Saturday each month. The options expiration week has historically been a significant event. It might be possible to develop trading strategies both before and after this Friday.

This article reveals the performance in the S&P 500 after the options expiration week. The results vary from month to month. August has been a good month while September has performed poorly.

How to backtest the options expiration week

In order to test the options expiration week, we need to make a script or code to count the number of Fridays. In a previous article we touched upon how to do it and we recommend reading that article:

(For your convenience you can buy the Amibroker code for the options expiration week on this link:

Additionally, you get access to the Amibroker code (some even for Tradestation/Easy Language) for all the other free trading strategies we have published since 2012.)

How do stocks perform the week after the options expiration week?

Let’s test the following trading strategy:

  1. Today is Friday in any options expiration week.
  2. We buy the S&P 500 at the close.
  3. We sell at the close the next Friday, thus we own the S&P 500 for one week (five trading days).

If we invested 100 000 in 1993 and let this amount compound until September 2021 (while only being invested during the week after options expiration week), we get this equity curve:

The CAGR is 1.16% while the time spent in the market is about 22%. Thus, the week after options expiration day is lower than an average week.

Does it matter which month it is?

Yes, the month matters. This is the total profits of being invested in the different months:

The first column shows the month. August is the best month while September is the worst.

This is the equity curve of only being invested in the week after options expiration week in August:


The average weekly gain is 0.7%.

This is in stark contrast to the week after options expiration week in September:

The average loss for the week after the options expiration week in September is 0.8%! Furthermore, the win ratio is a low 25%.

Summary:

The week after the options expiration week is not a strong week for stocks, and in certain months very negative. This is probably not a trading strategy in itself, but the stock market is just as much about avoiding the bad trades, just like long-term investing is about the stocks you don’t own.

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Disclaimer: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.