The Best Stocks for Straddle Players

Low volatility could yield big profits with an options straddle

Senior Quantitative Analyst
Aug 2, 2017 at 6:55 AM
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Stock market volatility has been extremely low for some time now. A few weeks ago, I wrote about 2017 having the lowest average CBOE Volatility Index (VIX) reading ever (we have VIX data back to 1990). It is a bit of a myth that options traders require a lot of volatility to be profitable. That's not the case at all. As volatility has fallen, so have the expectations for volatility. This lowers options prices, which means stocks need a smaller move to be profitable. This week, I’ll list some stocks whose options are thriving in this low VIX environment.

How to Find Stocks With Attractive Options

To determine stocks that have had attractive options, I calculated returns on straddles over the past two years. A straddle consists of buying a call option and a put option on a stock. The call and put should have the same strike and expiration date. This takes direction out of the equation, so the position can profit whether the stock goes up or down. However, the stock move must be bigger than simply buying a call or put, because it must be enough to cover both premiums that were bought.

The Top Stocks for Straddles in the Past Two Years

The data below assumes you purchased an at-the-money straddle 12 days before expiration. This time frame is analogous to purchasing a straddle at today’s close that expires on Friday, Aug. 18. It assumes you held the straddle through expiration and closed it at intrinsic value.

Using the method above and going by the average straddle return, the table below shows the top 20 stocks for straddle plays over the past two years. It also shows the median straddle return, the percent that were positive, and the percent that would have doubled your money.

The last column shows the percentage of the straddles that were positive due to the call option. In other words, of all the positive straddles, it indicates the percentage that were positive due to an increase in the stock price as opposed to a decrease in the stock price. This list of stocks was much more volatile than what option players had priced in. 

IOTW Aug 1 Straddle Highest Average Return

Below is another list of 20 stocks that were good straddle plays over the past couple of years. These are stocks that had the highest percent positive. These stocks wouldn’t have earned you the most money with their straddles, but they turned out winners more consistently than others.

IOTW Aug 1 Straddle Highest Percent Positive

Finally, below is a list of stocks whose straddles doubled most often. These stocks provided a decent number of opportunities for big short-term gains for traders able to time volatility. 

IOTW Aug 1 Straddle Highest Percent Doubled

 

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213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

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