With all the experiences I had trading Apple options from the long side on Friday over the past few years both with big wins and frustrating losses I decided to truly do a back test to see if the pinning action was as bad as I imagined. In some ways it was, with tight 1% pins that went on for many weeks of Fridays and other times bursts of big volatility for a few weeks. Considering trading from the short side by selling Apple weekly options was no easy money either while looking at the historical price action with huge winning streaks occurring for months at times and big win percentages of winners for selling 2% out of the money strangles but the very few weeks where Apple did move 3% on Friday would take back most of those profits at one time. Hedges by buying farther out options were a must but added to the expenses of the option play. The success of any system for trading weekly options will come down to how the trade is managed, whether it is allowed to play out until the end of day Friday or if it is stopped out when a short option goes in the money. Also playing iron butterflies and managing it with adjustments as it unfolds helps keep the losses controlled somewhat. Of course the priced in implied volatility for the price you get or pay will make a big difference.
I saw no edge buying on Friday morning versus Thursday at close and the short side benefited from buying end of day Thursday as the options drop quickly on Friday morning with the over night risk behind it, most of the big moves on Friday happened intra-day. Like with all trading strategies it all comes down to figuring out a way to maximize the winners and keep the losers as small as possible, that one thing will make all the difference on whether trading Apple options on the long or short side is profitable. Looking at this price action also shows how a big winning percentage system can still lose, the farther out you take a short option strangle the bigger the win percent but smaller the dollar win and bigger the losses on the few losers as a short option goes in the money and the worst the profitability. Playing short options on Friday with big leverage or with no hedge guarantees eventual blow up. Here are the stats to ponder you own strategy. Trade at your own risk.
July 2010 to EOY From Thursday close to end of day Friday Apple moved less than 2% 23 times and more than 2% 3 times.
In all of 2011 From Thursday close to end of day Friday Apple moved less than 2% 43 times and more than 2% 9 times.
In all of 2012 From Thursday close to end of day Friday Apple moved less than 2% 41 times and more than 2% 11 times.
So far in 2013 From Thursday close to end of day Friday Apple moved less than 2% 26 times and more than 2% 7 times.
This back test showed that from Thursday close to Friday close Apple moved less than 2% 133 times and more than 2% 30 times.
78.44% of the time Apple moved less than 2% on Friday since the trading of weekly options.
However over this test period Apple moved more than 3% 6 times from Thursday close to Friday close, those six days were capable of taking back the profits in shorting these options from all the other days combined if let to run their natural course until the Friday close.