March 24, 2017

Options Backtesting Results

Historical average return: -$115.19 (backtested over 11.1 years)
Historical success probability: 20.3%

Summary

Options traders are betting on biotechnology declines over the next two months in large size. With XBI implied volatility at three year lows, the put options selected by these traders are historically inexpensive. But like most hedging strategies, they have negative options backtesting results as they generally lose money over long time horizons. The maximum historical payout for these hedging trades would be 6x premium paid.

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