Strategies for Typical Year End

Option Strategies for Typical Nasdaq-100 Year End Price Action

Thanksgiving week is upon us which leads traders to focus on the end of the year as well as projecting an outlook into the following year. When the Nasdaq-100 (NDX) is having a strong year leading up to Thanksgiving, the result is typically more upside for the final weeks of the year. On average, NDX performance during this period has been flat, but if the market is higher just before turkey-day, bulls have usually benefitted through the end of the year.

A trader who purchased NDX on the close the day before Thanksgiving and exited on the close on the last trading day of the year over the last twenty-five years would basically breakeven. The chart below shows the performance for this period by year.

Data Sources: Bloomberg & Author Calculations

As noted, over the past twenty-five years the average NDX change through the end of the year has been very close to 0.00%. Admittedly, this average is pulled down by two 12% plus losing years in 2000 and 2002. Excluding those years, the average change is about +1.00% through year end.

The lead on this blog stated that positive NDX performance leading up to Thanksgiving is often a precursor positive performance through the balance of the year. As of Monday, November 24, NDX is up about 18% year to date. Barring a significant move lower, year-to-date performance will likely be over 15% at the close this Wednesday. The chart below shows the performance for NDX from the day before Thanksgiving through year end for years where NDX was up 15%.

Data Sources: Bloomberg & Author Calculations

From 2000 through 2024, NDX has been up 15% or more eleven years. Of those eleven, NDX rose nine times to the end of the year and seven of those years NDX rose more than 2% to end the year. The average move is +2.45% over these eleven strong years with the worst outcome at -1.89% in 2014. The best performance was a tad over 6% in 2020. Both these levels will be discussed more shortly.

Using the figures based on years where NDX was up 15% or more the day before Thanksgiving, we formulated a few trades. The drawback in this space is the pricing is from Monday, but these illustrate how NDX options may be used to create a payoff based on how NDX has behaved at year end during bullish years.

On Monday, November 24, NDX closed at 24873.86. Recall the biggest loss for NDX between Thanksgiving at year end was 1.89% in 2014. The 24375-strike price is about 2% lower than the Monday close and is a logical strike for the short leg of a bull put spread. Late Monday, the NDX Dec 31st 24375 Put could be sold for 464.25 and Dec 31st 24350 Put purchased for 459.25 resulting in a credit of 5.00. The payoff at expiration appears below.

Data Sources: Bloomberg & Author Calculations

A trader that thinks NDX will at minimum not drop by 2% or more may consider the trade depicted above. The strike price of 24375 is slightly lower than the worst performance in a bullish year for NDX to close out the year. Another bull put spread may make sense if a trader is convinced NDX will have positive performance over the holiday season.

Again, with NDX at 24873.86, the NDX Dec 31st 24875 Put could be sold for 630.10 and NDX Dec 31st 24825 Put purchased for 613.10 resulting in a credit of 17.00 and payoff depicted below.

Data Sources: Bloomberg & Author Calculations

Choosing the create a 50-point wide bull put spread in this case was somewhat arbitrary. However, the 1 for 2 risk-reward for something that has worked 9 of 11 observations is attractive. Admittedly, this is a small sample, but a good example of pricing not agreeing with the odds of an outlook.

The intent of this blog was to discuss bullish trades for NDX. However, just for fun, we priced a bear call spread using data from the table above. Of the years when NDX was up 15% or more at Thanksgiving, the most bullish outcome was a 6% gain in 2020. Assuming our outlook is that this level will not be surpassed, we could sell a far out of the money call and buy a farther out of the money call. The closest NDX Dec 31st strike to 6% higher than 24873.86 is 26350. After considering a couple of combinations, selling the NDX Dec 31st 26350 Call for 139.15 and purchasing the NDX Dec 31st 26400 Call for 131.35 would result in a credit of 7.80 and the payoff that appears below.

Data Sources: Bloomberg & Author Calculations

The risk of 42.20 versus reward of 7.80 was honestly better than we expected before pricing this 6% out of the money bear call spread. However, NDX is a volatile index, and 6% in one week, let alone five weeks, is not out of the question. Of course, this leads to the ultimate end-of-year trade, combining a 2% out of the money bull put spread with this bear call spread.

The bullish spread example that was based on NDX not losing more than 2% into the end of the year was 25-points wide. To balance things out for the iron condor, a 50-point wide bullish spread is priced by selling the NDX Dec 31st 24375 Put at 464.25 and buying the NDX Dec 31st 24325 Put for 452.50 resulting in a credit of 11.75. Combining that bullish leg with the NDX Dec 31st 26350 / 26400 Bear Call Spread gives us the payoff below.

Data Sources: Bloomberg & Author Calculations

Recall the NDX Dec 31st 26350 / 26400 Bear Call Spread took in a credit of 7.80. Combining this with the bullish leg credit of 11.75 results in taking in 19.55 for this unbalanced iron condor. The worst-case scenario is an outlier move lower of over 2% or rally of more than 6% to close out 2025.

Remember, these examples used Monday option pricing, but the outlook is based on the close Wednesday, November 26. Taking historical results during bullish years, we priced bullish and neutral trades that make sense if those results are expected to be repeated.