expiration option behavior?

N

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?
 
Jeff Augen wrote an article for last May's SFO Magazine about an IV pattern on expiration day for stocks over $50 with large open interest, He stated that barring major news, IV tends to increase until 11 AM, drops toward noon, levels off for 2+ hours and then drops sharply into the close. He suggested that long positions may be best suited for the AM and short positions for the afternoon (straddles and possibly ratio spreads might be a good idea).

I've been meaning to track this and see if there's a reasonable pattern that's tradeable but other things have occupied my attention. One of these days...
 
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. ?
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A value of .40 according to who?

Only value that matters is the current bid/offer, not any other value offered by your broker/feed.
 
Quote from heech:

A value of .40 according to who?

Only value that matters is the current bid/offer, not any other value offered by your broker/feed.
More...

By these dudes.

traders.jpg
 
Quote from heech:

A value of .40 according to who?

Only value that matters is the current bid/offer, not any other value offered by your broker/feed.
More...

according to the bid and offer on IB software....
 
Quote from spindr0:

Jeff Augen wrote an article for last May's SFO Magazine about an IV pattern on expiration day for stocks over $50 with large open interest, He stated that barring major news, IV tends to increase until 11 AM, drops toward noon, levels off for 2+ hours and then drops sharply into the close. He suggested that long positions may be best suited for the AM and short positions for the afternoon (straddles and possibly ratio spreads might be a good idea).

I've been meaning to track this and see if there's a reasonable pattern that's tradeable but other things have occupied my attention. One of these days...
More...

hmm does he mention why that is the case? do you have a link to the article, google didnt help. thanks
 
Quote from spindr0:

Jeff Augen wrote an article for last May's SFO Magazine about an IV pattern on expiration day for stocks over $50 with large open interest, He stated that barring major news, IV tends to increase until 11 AM, drops toward noon, levels off for 2+ hours and then drops sharply into the close. He suggested that long positions may be best suited for the AM and short positions for the afternoon (straddles and possibly ratio spreads might be a good idea).
More...
It's hard to imagine this being significantly trade-able for anyone short of Citadel, considering the ask/bid spreads involved (for just about anything that I can think of).
 
Quote from heech:

It's hard to imagine this being significantly trade-able for anyone short of Citadel, considering the ask/bid spreads involved (for just about anything that I can think of).
More...
I realize that authors cherry pick successful examples for their theories. And I'll do the same with an example :)

An ATM straddle on a 50 IV stock one day before exp might provide a premium 2% of the strike. That may not sound like much but it's going to be worthless in 24 hours. If Augen is correct and IV increases the next AM, that will somewhat offset the rapid decay rate of the first few hours.

At this point I can't say yea or nay to his premise but I do know that I have found some very profitable ways to make money after doing some time consuming exploration. This is on my to do list for when my current adventures cease working - as most things do.
 
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