Do You Use the Most Popular Options Strategies? Here They Are
Data is a big part of any business. Heck, just ask Facebook or Google about that. But even smaller companies like to have data on their customers to better improve their product offering. They want to know what is and what isn’t working. Or in Option Party’s case, we just want to know what our users’ preferences are.
So in that regard, we took some time to pull together the most popular scans on the Option Party platform. Curious as to where you fall within the group? Let’s have a look below, which captures our last 30 days worth of scans.
The bull put spread, bear call spread and cash-secured put were the three most popular strategies. All credit trades, these three represented almost 40% of all the trade scans on Option Party’s platform. The 38.8% share belonging to credit trades in the pie chart are essentially just counting these three strategies. The rest — nine in total — are all debit trades.
Looking at the year-to-date data reveals similar numbers, with credit trades commanding a market share 100 basis points less than its 30-day measurement. Credit trades account for 37.8% of all trade scans so far this year, compared to 62.2% registering as debit trades. The top three most popular trades in the year-to-date data is the same as the 30-day scan. However, cash-secured puts were the No. 2 trade in 2017, compared to No. 3 over the last 30 days.
What Do the Numbers Mean?
Like the economists like to say, you can’t form a trend based on two data points. It’s not surprising to see the three most popular trades being credit-based, given the number of pros who prefer the “casino” approach to selling options as opposed to buying them.
Given the power of hindsight, it’s also positive to see the strategies that investors are using in the current market. The S&P 500 is up a solid 16% on the year. While great, that lags the Dow Jones and Nasdaq returns of 19% and 27.5%, respectively.
Looking at the three most popular strategies, two are bullish, with cash-secured puts and bull put spreads. The other, bear call spreads, is technically bearish. However, as long as the underlying security slowly grinds higher and/or stays flat, this strategy can realize maximum profitability without the stock moving lower.
The bears haven’t come out yet, though. Covered calls, a neutral to bullish position came in at No. 4. Bull call spreads and long calls came in at No. 6, as these strategies are strictly bullish. For those wondering, long iron condors came in at No. 5, which is a neutral strategy.
In a nutshell, we have various neutral to bullish strategies rounding out the top six strategies, with the exception of bear call spreads — which can still pay out even when the direction is wrong. Admittedly, bear call spreads are generally considered bearish, but they can be used in a cautious fashion.
Applying the Data
There’s nothing tangible that we can do with the data other than analyze it. For some traders, it may validate their strategies. For others, it may act as some insight to consider trying different strategies. After all, these have been successful through 2017 and should continue to do well until market trends change.
Noting that credit trades remain the most popular, it demands patience from traders and allows them to collect their payout as their option positions slowly bleed to zero as expiration ticks closer and closer. For some, that may not be optimal and they’d rather play for potentially larger moves in a short time period with debit trades. But the numbers don’t lie and credit trades are the most popular (at least on Option Party) and have been working.
It also registers a few ideas on what to do with the data. For instance, thanks to Option Party’s Opportunity Alerts feature, we can set up scans utilizing some of these popular strategies and only get alerts when new trades present themselves. That way, traders who don’t utilize some of these strategies can still see the top trades coming from the platform without being fully committed or dependent on them. In a way, it’s like dipping our toes in the water rather than jumping in with both feet. This will give traders time to become comfortable with the trades and better understand the risk/reward profile of each strategy.
Considering the Future
It will be interesting to see how these trends develop over time. Particularly when we have a market correction and what a potential spike in volatility may do with some of these strategies. The data is particularly insightful when used with hindsight, such as what we’ve done with the two sets we used here.
In fact, considering the past 30 days of trading where the market showed the potential for a small correction, we did notice that the bear call spread jumped up to No. 2, from No. 3 in the year-to-date data. Investors could have been positioning ahead of the event, but they also may have been reacting to the weakness and looking to capitalize on a potential pullback.
Given the amount of filtering features that are now available on the platform, traders can make a near-endless set of combinations that fit their exact needs. Whether that results in trade opportunities daily or just monthly will depend on their preferences. The nice thing too? They can have strategies queued up for certain market events, such as finding buying opportunities after a big correction or bearish plays during the pullback.