Expiration week trades, let's hear 'em

I used to work as an analyst for a firm that delta-hedged and occasionally ended up with unplanned short ATM straddles on or near expiration day. No delta, lots of negative gamma = scared delta hedger willing to overpay to get out. Some big price insensitive trades happened, and I think whoever was on the other end got some good deals. I don't think they were being stupid, just making a risk management decision. Holding and hedging these things was just not in their business plan.

It was not in stocks, but I don't see any reason why the scenario wouldn't happen there too. I could envision this being a common enough occurrence that it would affect pricing of ATM options around expiration. If there is a group of short straddle holders are under pressure to buy, while the long straddle holders are generally content with their positions, options should be rich.

So if I had the data and the inclination I would get a big sample of options that became ATM or close near expiry and analyze this. Was the IV relatively high? Would selling them be systematically proftable? And did it matter how much of a surprise it was that the options became ATM? Does it matter if there was a large open interest? I suspect I'd be able to find something.

And this is anecdotal, but on an old thread there was talk of a small hedge fund selling ATM options on expiration day doing very well.
 
blackdiamond, I think your point may be valid and it's sort of what I was saying in my previous post regarding the trade size issue. The only thing I'd say is that it would make the strategy inherently not scalable, since, as your size grows, you migrate into the cohort of people for whom being short gamma arnd expiry is not part of the business plan.
 
Quote from darwin666:

PCLN 240 calls

BIDU 500 calls

both may go down to the WIRE...fetching u 1.30. range.. shud be free money
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thanks for the PCLN idea, nice decay an IV crush over last few hours.
 
Quote from xflat2186:

You missed the boat on PCLN, yesterday was earnings and the VOLa crush was today
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sorry.. i forgot to mention.. that I SELL CALLS.. hence my intention is that THEY EXPIRE WORTHLESS..

i did not miss the boat.. but want to profit from the SINKING( worthless expiring options)
ha ha ha
 
Quote from darwin666:

sorry.. i forgot to mention.. that I SELL CALLS.. hence my intention is that THEY EXPIRE WORTHLESS..

i did not miss the boat.. but want to profit from the SINKING( worthless expiring options)
ha ha ha
More...

worked for me. More than one way to skin a cat.
 
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