The holiday season is a great time for personal and professional reflection - especially with a quality holiday beverage! So grab your favorite holiday drink, and take a quick look back at 2017 with your friends at tastytrade...
Even without hard data, most traders could probably tell you that equity volatility was depressed in 2017. Research published by tastytrade suggests that 2017 may actually have been one of the least volatile years in history.
For more context, consider the fact that the VIX dipped below 10 on at least 91 trading days during 2017, while the 27-year period from 1990 through 2016 only saw 44 such occasions (gasp!).
And while the VIX was busy setting records in futility, cryptocurrencies (aka digital currencies) emerged as one of the biggest stories of the year - thanks to soaring valuations and eye-popping volatility.
The impact of cryptocurrencies on the broader financial market was punctuated well through the performance of LFIN in December. Longfin Corporation (LFIN) nearly quintupled after announcing this month it had acquired a “blockchain company,” and then dropped like a rock when digital currencies across the board experienced a big sell-off near the end of the year. Since then it has since gone on another big bull run. What a rollercoaster!
In terms of individual stocks, the technology sector (thanks in large part to the crypto-boom) experienced a big year, as did the financial sector. Below are some of the biggest winners and losers individual stocks from the S&P 500 in 2017:
10 Biggest 2017 Winners S&P 500
Align Technology (ALGN)
NRG Technology (NRG)
Micron Technology (MU)
Wynn Resorts (WYNN)
Vertex Pharmaceuticals (VRTX)
DR Horton (DHI)
10 Biggest 2017 Losers S&P 500
Range Resources (RRC)
Envision Healthcare (EVHC)
Under Armour (UAA)
Chesapeake Energy (CHK)
General Electric (GE)
Advance Auto Parts (AAP)
Signet Jewelers (SIG)
As for equity indexes, consider the fact that the Dow Jones Industrial Average closed below 20k at the end of last year, and is nearing 25k presently. Not be outdone, the S&P 500 added nearly 400 points, and the Nasdaq rose from around 5,500 to roughly 7,000. All three notched new all-time highs during 2017.
Those numbers on their own provide a fairly clear rationale for why volatility has been so depressed throughout the year. Equity indexes and volatility measurements like the VIX typically share an inverse price relationship - when one goes up, the other goes down.
So we know stocks moved up for the most part, but what about how stocks moved relative to expectations in the options marketplace? What stocks stayed in their expected ranges, and what stocks broke out?
A recent episode of Options Jive took a crack at this precise question, and we think the results are worth a look.
Taking the ten biggest holdings from each of the major stock indices (S&P 500, Nasdaq, Dow Jones), the Options Jive team calculated the expected one standard deviation move for each of the 30 securities and then compared that figure to the realized move (across expirations in 2017). Next, they ascertained the percentage of time that each stock stayed within its expected move.
Based on a single standard deviation, the expected target for a stock to stay within its expected move would be 68% of the time. A higher percentage, therefore, indicates that a stock stayed within its expected move more often than expected, whereas a lower percentage indicates that a stock stayed within its expected move less often than expected.
The results of this analysis are shown below, with the biggest movers highlighted in green, and the smallest movers highlighted in red:
Going a step further, the episode also focuses on the biggest and smallest movers of 2017 in the ETF universe, so we recommend taking a few minutes to review the complete episode of Options Jive when your schedule allows.
So at this point, it’s fairly clear that stocks in the USA generally outperformed - but what about the rest of the world?
Below are some of the best performing international equity markets from 2017:
Merval Index (Argentina): 51%
All-Share Index (Nigeria): 44%
Borsa 100 Index (Turkey): 43%
Hang Seng (Hong Kong): 34%
Sensex (India): 27%
Bovespa (Brazil): 25%
KOSPI (South Korea): 20%
S&P 500 (USA): 20%
Nikkei 225 (Japan): 20%
FTSE MIB (Italy): 15%
As you can see from the above list, the 2017 bull market wasn’t limited to North America. Traders seeking more information relating to foreign equity indices and ETFs can refer to this link on international diversification.
In the world of futures, the rebound in crude oil prices was another big story in 2017. Shrinking supply related to OPEC’s coordinated production cut appears to have finally had a big impact on the market. Crude oil inventories in the United States were depleted by over 100 million barrels in 2017, while global floating crude oil stores also shrunk considerably.
Traders looking for a more detailed recap of the 2017 trading year from a futures perspective will find a recent installment of Closing the Gap - Futures Edition worth reviewing. The show highlights some of the extreme futures movers from 2017 and provides traders with important perspective (and ideas) heading into 2018.
In closing, we want to thank you for being a part of the tastytrade community in 2017!
We are looking forward to the new trading year and hope you’ll send us any ideas you might have that might improve the tastytrade experience - in terms of programming, or anything else!
Please send that information, as well as any other comments or questions, to firstname.lastname@example.org at your convenience.
Happy New Year!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.