Friday, April 11, 2008

Mythdirection Thursdays

So Adam at the Daily Options Report on Thursday threw down the gauntlet when he said he’s never seen a study which confirmed or denied the legend of “Misdirection Thursdays”. Allegedly, whichever way the market moves on the Thursday before expirations week is counter to the general direction it will move from then until expiration. So I ran some tests.

Buying (shorting) at the close on Thursday before expirations week if the market was down (up) and selling (covering) the Friday of expirations would have netted the following results since July 1978:

Trades – 354
Winners – 171
Losers – 182 (1 breakeven)
Average trade - -0.08%

So the overall concept doesn’t seem to hold. What if we break it out by longs and shorts?

The long signals were profitable 57% of the time for an average gain of 0.24% over 6 days.

The short signals were profitable 40% of the time for an average loss of 0.39% over 6 days.

Here we see that the short signals were actually a better buy signal that the buy signals.

Meet Mr. Douglas – the newest myth-Buster.

3 comments:

Anonymous said...

I believe that idea came from Jeff Cooper on the Minyanville site. He has quoted Miss direction Thursdays many times. Thank you for the REAL answer.

Anonymous said...

hi rob,

Where did todays cbi end up ? Thanks

Red Hue said...

Rob,

As I have said before...I love the myth busting stuff!!!