Playing the after hours market with expiring options

F

FSU

There have been some opportunities lately buying cheap options on expiration day, a few minutes before the close and then trading the after hours market in the stock. For example in Tesla the just out of the money puts and calls, that appear to be worthless, were trading around .10 on Friday. If you buy these it allows you to trade the after hours market of the stock. Tesla had a range of about 6 after hours Friday, so you would have been able to make some money doing this. SPY is another good candidate.

If you consider this trade, make sure you know your brokers cutoff time in accepting exercises and how to submit them. The OCC has a 530pm et deadline, but most brokers will have an earlier cutoff time. Also it will help with the margin on buying the stock if you have a PM account.
 
Great info. But do market makers sell those OTM options near expiration, and wouldn’t this expose them to risk?
 
FSU said:
There have been some opportunities lately buying cheap options on expiration day, a few minutes before the close and then trading the after hours market in the stock. For example in Tesla the just out of the money puts and calls, that appear to be worthless, were trading around .10 on Friday. If you buy these it allows you to trade the after hours market of the stock. Tesla had a range of about 6 after hours Friday, so you would have been able to make some money doing this. SPY is another good candidate.

If you consider this trade, make sure you know your brokers cutoff time in accepting exercises and how to submit them. The OCC has a 530pm et deadline, but most brokers will have an earlier cutoff time. Also it will help with the margin on buying the stock if you have a PM account.
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if you buy the option, you mean to sell the option in after-hours? but the option exchange is closed after 4:00pm. or you buy the option at 3:50pm, you then short the stock after hours?
 
trend2009 said:
if you buy the option, you mean to sell the option in after-hours? but the option exchange is closed after 4:00pm. or you buy the option at 3:50pm, you then short the stock after hours?
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You'd have to take on a position on the underlying and exercise the option. The A/H trade prices still effect the option even though you can't physically trade it if that makes sense.
 
The way the play would work, for example TSLA on Friday. The stock went out at 748.07. Just before the close the expiring 745 puts and 750 calls were offered at .10 and .12. Note that was the offer, you could potentially have bought them lower. Say you bought 10 calls for .12, or $120. Now you have the right to buy TSLA for 750 before your brokers cutoff time by exercising the calls (mine is 515 pm et). TSLA had an after hours range of 744 to 750.50, so the way I would have traded this (I didn't as I wasn't trading Friday's close) is I would have shorted 500 shares at around 750.20 and saved the other 500 shares if the stock rallied more (you are controlling 1,000 shares with your 10 lot of calls) If the stock falls, you buy it back for a nice profit, it goes up more you sell more stock and exercise your long calls, again for a nice profit.

Essentially you are controlling 1,000 share of stock for 1 to 1.5 hours for very little money.

With a Portfolio Margin account, this uses very little capital, not sure a traditional Reg T account would handle the margin requirement, as you are shorting $750,000 worth of stock, but it is covered by your puts.
 
FSU said:
The way the play would work, for example TSLA on Friday. The stock went out at 748.07. Just before the close the expiring 745 puts and 750 calls were offered at .10 and .12. Note that was the offer, you could potentially have bought them lower. Say you bought 10 calls for .12, or $120. Now you have the right to buy TSLA for 750 before your brokers cutoff time by exercising the calls (mine is 515 pm et). TSLA had an after hours range of 744 to 750.50, so the way I would have traded this (I didn't as I wasn't trading Friday's close) is I would have shorted 500 shares at around 750.20 and saved the other 500 shares if the stock rallied more (you are controlling 1,000 shares with your 10 lot of calls) If the stock falls, you buy it back for a nice profit, it goes up more you sell more stock and exercise your long calls, again for a nice profit.

Essentially you are controlling 1,000 share of stock for 1 to 1.5 hours for very little money.

With a Portfolio Margin account, this uses very little capital, not sure a traditional Reg T account would handle the margin requirement, as you are shorting $750,000 worth of stock, but it is covered by your puts.
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thanks.
 
FSU said:
The way the play would work, for example TSLA on Friday. The stock went out at 748.07. Just before the close the expiring 745 puts and 750 calls were offered at .10 and .12. Note that was the offer, you could potentially have bought them lower. Say you bought 10 calls for .12, or $120. Now you have the right to buy TSLA for 750 before your brokers cutoff time by exercising the calls (mine is 515 pm et). TSLA had an after hours range of 744 to 750.50, so the way I would have traded this (I didn't as I wasn't trading Friday's close) is I would have shorted 500 shares at around 750.20 and saved the other 500 shares if the stock rallied more (you are controlling 1,000 shares with your 10 lot of calls) If the stock falls, you buy it back for a nice profit, it goes up more you sell more stock and exercise your long calls, again for a nice profit.

Essentially you are controlling 1,000 share of stock for 1 to 1.5 hours for very little money.

With a Portfolio Margin account, this uses very little capital, not sure a traditional Reg T account would handle the margin requirement, as you are shorting $750,000 worth of stock, but it is covered by your puts.
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the question is what price is the broker uses to exercise the option? 4pm close or 5:15pm or 8:00pm?
 
trend2009 said:
the question is what price is the broker uses to exercise the option? 4pm close or 5:15pm or 8:00pm?
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Doesn't really matter. If you give instructions to exercise (I am sure that's the intention after shorting those shares) they have to, as long as you have the funds.
 
trend2009 said:
the question is what price is the broker uses to exercise the option? 4pm close or 5:15pm or 8:00pm?
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The closing price is used to determine whether an option is automatically exercised. If it is .01 in the money it will be auto exercised, unless you file a notice not to, or to if out of the money.
 
FSU said:
The closing price is used to determine whether an option is automatically exercised. If it is .01 in the money it will be auto exercised, unless you file a notice not to, or to if out of the money.
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Is it 4pm close?
Is it bid or ask?
Sounds like a lot of money is left on the table if after market is moving
 
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