Raw Transcript: Zero-Day Options: Holiday Trading Patterns Analyzed

Welcome to Market Measures, our weekday research segment built on real trades, real outcomes, and real market behavior. Today, we're breaking down how zero data expiration trades behaved during the Santa Rally, why ultra low volatility changed the risk profile, and how faster profit taking outperformed just letting trades run. Stay tuned because the difference between a great [music] week and a painful week came down to mechanics, not market direction. Mike, where is the Santa Claus rally? Is this it today? Are we finally getting the Santa Claus rally? >> Um, it may be. It might be the extended Santa Claus rally. You know what's what's funny about the Santa Claus rally? Uh, I watched a Santa Claus movie with Kurt Russell and uh can't say I'll ever watch it again. Christmas Chronicles. Have you seen this? >> No. I got subjected [laughter] to a movie called Christmas Again >> on the Disney Channel, which is basically Groundhog's Day for kids. >> Got it. >> But this little girl But this little girl's a brat who's having like the best Christmas ever and doing everything she wants to do every single day. And like it never gets boring for her. >> So there's no lesson learned. No [laughter] lesson learned. >> Yeah. Then your kids turn to you and you're like, "Why am I not doing this every day?" >> Yeah. Great. Like all right, this isn't First Call, by the way. Mike, what show are we on? This is market measures. >> This is market measures. >> I heard you say it, but I, you know, I just wanted to let you roll with it. See where we went with it. >> Maybe you should take this one then. >> Well, I missed the first hour of the day, so maybe not. Maybe not. [laughter] Um, weekly zero day breakdown trading into the Santa rally. Let's dive in, people. Uh, all right. S&P and the VIX. VIX one day. So, we literally just talked about this how volatility can be uh a nice guiding light at least for near-term movements. But during the Christmas week, Santa rally pushed the market to new highs while implied volatility declined heading into the new year. Intraday trading ranges widened uh accompanied by elevated trading volume during the final trading days of 2025. Um, and yeah, the this story wasn't necessarily uh the S&P again. It was the precious metals, which is the first a first for me. Normally, it's the S&P and the NASDAQ just ripping higher, trying to create the the narrative. Like I I was shocked that we didn't get to 7,000 uh S&P, but hey, there's always next year or I guess this year. There's always this year. Um, let's >> We're waiting until next year for 7K. Mike, I've got a [laughter] real >> I think we'll get there in a couple weeks at this rate. Couple weeks. >> Uh let's pop over to the next slide. Take a look at the VIX levels during the holidays. So, the VIX reached its lowest level on Christmas Eve. Spooky, closing at 1347. The median VIX during the holiday period was 14 1.5, well below both the 2025 median of 17.2 and the long-term median of 16.7. Uh and I like for this one. So this is a a good example of another shred of market awareness. So it's not always like it's not always the market ripping higher resulting in the VIX getting depressed. Sometimes it's the market not moving and the VIX getting depressed. So sometimes you'll see uh market selling off VIX is elevated and then not necessarily the market rebounding in a big way. It could just be the market cooling off and having a narrow intraday trading range which results in the VIX being compressed. So the volatility or the the VIX is the volatility forecast of the S&P 500. And if the S&P 500 is not moving, even if it's moving a a slight bit to the downside or a slight bit to the upside, you can and should expect to see the VIX compress a little bit. So uh that was for me the really the story of the end of the year. Uh do you have anything to add to this or are you on board with that? >> I mean I'm on board with it. I uh you know again the fact that Santa Claus rally really hasn't played out even though V declines at the end of the year and it's below both the 2025 and longer term >> medians. I would think that the S&P should be at 7,000 or 7100. Maybe I have some interest over there. Mike, [laughter] >> maybe. Maybe. Well, you definitely do now because you were filled on the show. So >> yes. [laughter] Oh, that's true. I got to put them on the follow page. [snorts] >> There you go. Um, let's pop over to the next side. Look at Iron Condor performance. We kind of talked about this uh a couple minutes ago about low VIX S&P not really moving. Um, but iron condor performance, low realized volatility during the holiday period, which was really just super narrow trading ranges, not much going on at all. Uh, created an ideal environment for premium selling in this example. So, managed positions at 25% max profit resulted in a 100% success rate since mid December. Um, and yeah, I think when you take this into account and you look at how narrow these trading ranges were, you were consistently getting paid to take that risk. Uh, and this is a good example of implied volatility likely overstating realized volatility because the markets still have to price in some kind of volatility. You can't just price in the fact that we're going to have, you know, a 50 point trading range or a 40 point trading range or even more narrow than that. So, uh, it was a good end of the year and specifically for the S&P, the attention was elsewhere. The S&P really wasn't moving too much. So, created a nice environment uh, for the daily iron condor for 25% profit. How about 50% profit on the next slide here? 50% uh looking at the profit target greedier profit taking at 50% increased risk without improving returns. Interesting. Longer durations and higher afternoon volatility led to two losses and materially reduced overall performance. And yeah, um this when you think about this and you think about how these trades are deployed, uh with iron condors, when you place them to get 50%, you're going to have to hold them more than likely into the early afternoon uh late afternoon session where if you're just trying to get 25%. That could come out in the first hour of trading, hour and a half trading. Like it is could be as simple as that. So in this case it's uh you know risk on risk off trying to take a tiny chunk out of it and in the case of lower implied volatility when you have a narrow trading range you can't absorb as much volatility against you. So, I think in this situation, taking them at 25% really got you out of the trade a lot sooner versus the 50% target where you were likely waiting longer, probably from like 9:00 a.m. to noon, I would assume, if we were to look at the time stamps on these. Yeah, here you go. the the minutes from entry. Uh you can see you have to hold these way longer than on the previous slide where you were out on all of them by 11:00 a.m. So these ones you're holding them into the afternoon and a lot of them turn into losses because of it. It's >> a great environment for scalpers, Mike. I you know uh this seems to be like a holiday playbook more than something that would necessarily be great during normal conditions. But again, if all's staying low and we don't have catalyst, I that earnings calendar this week is really dry. There's nothing there until Friday for non-firm periods. >> Yeah. And I think you could see you could see a situation where we are kind of just in this low period until the banks report because the banks to your point, you called them out earlier, they're ripping higher and it could set the stage for a strong earnings report quarter, but they don't report until January 14th, 15th. Um, so we still have about 10 days until that happens. >> Banks make money when they get paid back, Mike. That's all I'm going to say to that. [laughter] >> Hey, we'll see. We'll see. Maybe they'll they'll drum something up for us. Maybe they'll surprise us. Probably not, though, because they're banks. Uh, all right. Next slide, please. Exceptional performance during the holiday. This holiday period, zero day performance significantly outperformed long-term results when profits were taken earlier and trade duration was reduced. Um, so again, taking profits at 25% really the story was the duration. And you can see it here. 2 hours uh in the time in the trade, an hour since 12:15, 50% reduction uh in the time in the trade. though. Um, and I think when you look at the way the markets moved or didn't move in this example, taking the the small shots when volatility is super low, I think this is a good takeaway for this this market measures here is if we have the VIX in the low teens, maybe you reduce your profit target to 25% instead of 50 because, you know, you're dealing with more narrow trading ranges and you want to be out sooner than later because of that. Um, and historically with the Santa Claus rally, of course, we didn't we didn't really get one this year. So, the neutral iron condors worked well in this period of time. Uh, and it it did work well with the lower implied volatility and the lower profit target to be sure. >> The Santa Claus rally window officially today's the last day, so it's the first two of the the new year. Um, that puts us through to the we started this window on the 20 end of the 23rd. That was 6961 in the S&P 500. We have moved 17 points, Mike, over that window here. So being directionally neutral around it was ultimately the right thing to do. >> Yeah, for sure. So far, uh, next slide, please. Side testing analysis. So, recent price action differed from long-term behavior. Instead of frequent callside testing, S&P more consistently challenged the downside with the downside strike tested approximately three times longer than the call side over the past three weeks. This downside heavy price behavior increased the risk of bullish strategies. Um, and yeah, I mean it while this is true, it's not we're not being tested with 200 point moves to the downside. We're being tested with very small moves. And uh I think it's more of a of a reaction of the low implied volatility in general and uh the lack of interest in pushing this thing to the moon. Santa Claus was smoking sigs outside uh akin to bad Santa not giving us [laughter] I see your reaction here. But I mean it's true. We didn't get the rally and I'm kind of upset now that I think about it. I'm kind of upset we didn't get it. There's probably some deep deep childhood [laughter] trauma buried somewhere in there, Mike. >> Potentially. Potentially. Well, we won't we won't bring that up on this show. >> No, that's market that's not for market measures. No. >> Yeah, maybe for uh for the opening bell at some other time. Um, next slide, please. 30 delta 30 wide put spread performance. So, keeping this in mind, traders who positioned bullish uh for the Santa Claus rally using a 30 delta 30 point wide put spread managed at a 25% profit target with a 500% stop-loss were still profitable but with significantly lower returns compared to iron condor strategies. So yeah, I think when you look at uh the minutes from entry, of course, these are going to be longerterm relative to the quicker profit targets. Uh likely cuz you're just you're collecting more, you're waiting for more, you're more directional. Um but yeah, nice to see that you were still profitable even with the more test to the downside here in this 2025 uh year end market. Last but not least, worstc case day review. 1215 and 1217 saw large one-sided moves, leaving only brief early morning profit opportunities. This underscores the importance of mechanical execution and quick profit taking in low volatility markets where volatility expansion can quickly increase risk. And yeah, even if you're not in the money uh or tested necessarily, if you see an implied volatility spike just for a little bit, you can see marked losses or exttrinsic value losses until that premium is zapped back out of the market. So again, I think the easy takeaway from this is when you have super narrow trading ranges, maybe your zero day profit target of 50%, you chop that down to 25. All things considered, you want to be out sooner than later. uh and in high volatility environments or implied volatility environments because you have a much wider trading range that you can absorb. Maybe that's when you're looking for that 50% profit target. Uh and I I think I can't emphasize it enough. It's it's because you have so much more space for that market to move. Although the market is projected to move more, uh it's easier to hold through that sort of period of time versus when you have, you know, a 20 or 30 point range with a zero day iron condor. Um where you're really just looking for that small kind of scalp feel. >> Yeah. And I think the takeaway there though, you're staying mechanical is what defines the success here. >> And the second that you start saying, well, you know, uh me 25%, let me kick this out to 50. >> And it falls apart, don't be surprised. It's a totally different risk profile. You need to hold the trade for longer. You need to take on more risk. It just but fascinating. Low volume, low volatility. You get a little bit of a sideways chop out of the gate. You can take your trade. You can move on and go back the next day and stay mechanical during that type of environment. but in that specific type of environment. This was just a glimpse of what we do live on the network every day. To catch the market analysis in real time, make sure you're subscribed. Don't guess. Trade with probability. See you next time.