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expiration option behavior?
- Thread starter newguy05
- Start date
Quote from newguy05:
Is there certain logic to how the option are priced on expiration day?
Give an example, last friday I had some nflx 165 weekly calls and was monitoring their behavior all day at work with the iphone, they kept their value for much longer than i expected. At around 2PM, the option was ~$1-2 otm, but it still had a premium of 40 cents. I suppose that's normal given the high price of the underlying.
I guess the question is are there some formula or consistency in determining the price of options on expiration day, if they are slightly OTM or ATM? Is it still the same formula based off iv?
A lot of stocks will end up close to their pinned price if they are slightly off it going into Friday. Those are the worst options to be holding on the option expiry day unless there is a huge catalyst to move the stock ( eg blowout earnings ). Even then the market might delay the stock move until Monday.
Really its a different game on the last day you take whatever market you can get. Many stocks are subject to manipulation with option sellers from institutions trying to reduce their exposure to large losses and make as many options worthless as possible.
One exception might be counter trending the stock moves during the week on Friday, anticipating the pin ahead of time. For example, if ABX went from $45 to $48.65 during the week, you might buy a $49 put and try to make the $0.65. The key would be to not get greedy, put an offer out there to exit at a target price and take it ( even if its 6 minutes after the open ).
95% of the time hokling options on the last day is a losing proposition for smaller investors. If you can't afford to exercise you can be ripped off very easily.
Quote from traderlux:
what do you think about the book?
it's really not that interesting, very short book that cherry picked a few stocks and talks about their behavior around expiration (ie: ping to a strike vs away from a strike etc..) by looking at the historical. And a few trade examples on how you can make 200% return!
Glad i didnt buy the book, just read it via safari online.
Google call options on expiration Thursday
2008/08/14. With the stock trading at $497.70 the initial position was long $500 calls and short three times
as many $510 calls. As the stock price climbed, implied
volatility collapse disproportionately impacted the
value of the short $510 calls. At the closing bell, with
the stock at $505.1 7, the long $500 calls traded for
nearly twice their opening price, whereas the short side
gained just 14%. These changes yielded a profit of
226% as the trade value climbed from $1.20 to $3.91.