I meant to post this earlier in the week, but it should still be applicable tomorrow, and in subsequent months.
As I wrote last week, an option’s price is determined by its intrinsic + time value. And since time value decays to zero as the option moves close to expiration, the day & week of expiration are the time to take advantage of reduced option pricing complexity. Here are a couple ways to do so:
Buying ITM options:
With reduced extrinsic value, buying these options imitates actually owning the stock (to a certain degree). This further reduces risk (less to lose to time decay), yet retains the leverage advantage of options vs. stock.
ITM options at expiration allow profits to be gained from slow moves in the underlying stock’s price. Slow, low volatility moves usually spell trouble for option values…but with no/very low time value to affect, volatility gets taken out of the equation. Even if the stock remains flat, all that will be lost are commission fees.
Buying OTM/ATM options:
As always, these options carry higher risk than the ITM flavors. The underlying has to move in the right direction and in the right time-frame. And obviously the time-frame gets grossly reduced during expiration week/day. However, with the reduced time-frame come cheaper OTM options, greatly increasing leverage and potential profits. A volatile market, like the one we are currently experiencing, also increases the likelyhood of profitability.
This strategy should not be used too overzealously as it can deplete your account real quick-like. But a few good bets in the right direction can make you a rich (wo)man.
NOTE: Potential Target? Can lightning strike twice?
NOTE, Part II: Others that I’m looking at:
- Calls: [[LIFC]] 40.0; [[SPSN]] 2.50; [[TCB]] 20.0
- Puts: [[BSC]] 5.00; [[PRU]] 70.0
Are you going to take a gamble on any of those MER puts? It’s kind of tempting.
What happened to that impenetrable chelsea defense?
Woke up late; missed the open, so no new positions. Most of my already existing ones, of which there were only a few to begin with, have gotten stopped out. Left with KCI April calls and a couple worthless OTM March gambles in CSUN & HES.
So looks like I’m done trading for the week.
Still mad at Chelsea. Mourinho would’ve had their balls, letting in 4, but this is the ‘more entertaining’ version of Chelsea, brought to you by Mr. No Talent Assclown Grant.
Put a strangle on this market on SSO and QLD…
I’m not smart enough to predict a bottom, or a top, so I just spread em and bank money on either side when the market moves.
Had 2 OTM calls for every OTM put on DBS(silver), and banked on the way up (but not enough, and luckily the down was very strong and allowed me to end up taking a big win.
Yeah, but where’s the fun in that?
Good idea, though.
Any reason you prefer strangles over straddles, other than reduced cost?
it’s just what I’m used to because I started with a small amount, and built my way up. Plus I never execute and always sell like 1.5 months before expiration anyways
holy crap gotta buy some of those MER puts, and another bank down just scares me and makes me almost start to think that maybe there’s a possibility that some of the details the conspiracy freaks have been saying are right…
Maybe I should join theclub and buy a foil hat, move out in the woods and buy shotguns and cevlar, and a bomb shelter with a 5 year supply of food and hell, why not some silver and gold, swiss fraank and Yen while I’m down there…
Another Bank collapse would be very messy
Despite the huge gain in MER, put volume & open interest stayed egregiously high and far outpaced call volume.
Should be an interesting weekend…is this just a bunch of sheep hoping for a repeat of BSC or is there actual substance behind the bets?
Remember that BSC started seeing huge put volume several days before the actual debacle, so maybe some insiders are looking to fleece the system here as well.
You should make a page out of this.
I’m not sure I have the rights to do so.
For example, I also cannot create new categories. But maybe I’m just WordPress-disabled/challenged/retarded.
I wonder why so many people like to comment stuff. Why is this kind of spending your free time so popular? Maybe people have a lack of communication in real world? Maybe that’s because they have a lot of problems in reality and want to run away from them? Maybe they need new impressions and experience? Or they just got suck here? I don’t have a clue. What do you all think?