Indicator of the Week: The 25 Best (and Worst) Stocks for Weekly Options Traders

Some stocks tend to outperform during the first week of the options expiration cycle

Senior Quantitative Analyst
Oct 19, 2016 at 6:30 AM
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There used to be just one expiration day per month for stock options -- it was the third Friday of every month. A few years ago, weekly options were introduced on a few tickers, offering expiration dates for each of the next five Fridays. That small list of names has grown to about 370 stocks and 75 exchange-traded funds (ETFs). As weekly options grow in popularity, I feel like less attention is being paid to the regular monthly options expiration cycle. That might be a mistake, because the regular expiration dates (the third Friday of the month) still account for a large majority of open interest. Among S&P 500 Index (SPX) stocks, less than 4% of total open interest resides in weekly options.

This coming Friday is the third Friday of the month, making it options expiration week. Next week is the first week of the November expiration cycle. This week, I will list stocks that have a noteworthy performance history during the first week of the expiration cycle, compared to other weeks. 

First Week of the Cycle: Looking at expiration cycles since 2014 -- which includes 33 returns -- I summarized stock returns for the first week of the expiration cycle (this would be next week). Below is a list of SPX stocks that have had an average return of at least 1%, and have been positive at least two-thirds of the time during the first week of an expiration cycle. Quite a few consumer discretionary stocks are on the list, along with many popular names. For whatever reason, these stocks have been particularly bullish the first week of expiration cycles since 2014.

First Week Expiration Cycle Returns Since 2014

I also summarized the returns over the last 12 months, and below, I list stocks with at least a 1% average return, that are positive 80% of the time during the first week of expiration cycles. Only three stocks make both lists -- Centene Corp (NYSE:CNC), Harman International Industries Inc (NYSE:HAR), and O'Reilly Automotive Inc (NASDAQ:ORLY). Which list is more relevant? A case could be made for either. The list above encompasses more returns -- and a larger sample size is generally better -- but the list below has more recent data, and would be more relevant if something affecting the outcome has changed, like the popularity of weekly options. 

I looked at Apple Inc. (NASDAQ:AAPL), specifically, since it is such a popular name. It ranks second on the list above, but does not appear on the list below at all, as it has been negative during the first week of the past four expiration cycles. As such, I would advise against blindly playing stocks on the list.

First Week Expiration Cycle Returns Past Year

Relative Strength of First Week vs. Other Weeks: Here's one more way I looked at this. I found the average weekly return for each stock during the first week of the expiration cycle, and then the average return for other weeks. I ranked the stocks by the relative strength of the first week vs. other weeks. The first list of stocks are stocks that have done the best the first week of the cycle compared to other weeks. This list seems to have a lot of retailers and consumer discretionary names on it. The second list of stocks -- the worst stocks to own the first week of the cycle, compared to other weeks -- seems to contain more oil and materials stocks. 

Best Stocks First Week Expiration Cycle

Worst Stocks First Week Expiration Cycle

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