Playing the after hours market with expiring options

[NewTraderAdventure]

To update, Friday Tsla 799.50 about 1 min before the close. Bought the expiring 800 calls for .15. Tsla closed at 800.03. Sold short stock after the close at 800.35 bought back at 799.50, then added a few more scalps. Had to leave at 430et, so I then filed a "do not exercise" on my calls as they were .03 in the money and finished with no position.

I think there is an additional risk here, if for some reason there is a mistake in filing the "do not exercise" I would end up coming in with 1000 shares. I did go over it 10x but there is always that risk.

Did you not also have to have 800k buying power for 10 calls, or did IB let you swing them with less?

I thought the 800 puts at 3pm were priced very cheaply at <$2 , went as low as $1, before spiking to $7 when tsla took a dump late.

More money in that kind of gamble with less hassle.

And you're right, theres a lot of execution risk in your trade.

 

[Adam777]

Hi @FSU. Just clarifying ... Once the underlying price moves in your favour, are you exercising the call option and shorting the stock at the same time (after hours), thereby ensuring you are closing your total position (and thereby not taking possession of the stock from the exercised call option) ?

 

[ChrisDouthit]

I think what what FSU is doing, is buying the option, and then when the stock trades up high enough, selling the stock. If the stock stays above the strike price he will exercise the option to bring his position back the neutral. However, if the stock falls below the strike price, he will just buy the stock back at the cheaper price, thus closing out the position.

Of course, if the stock trades back over the strike price he can repeat the whole process again until after hours trading has closed.

 

[Same Lazy Element]

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.

Is the general idea that you buy cheap options at/around the close and delta hedge them until the exec cutoff time (possibly at zero(ish) vol? Perfect retail trader strategy, if you ask me - severely capacity constrained and requires a human touch.

 

[traider]

Is the general idea that you buy cheap options at/around the close and delta hedge them until the exec cutoff time (possibly at zero(ish) vol? Perfect retail trader strategy, if you ask me - severely capacity constrained and requires a human touch.

delta hedging is very easy for machines too especially for big shops with low fees.

 

[Same Lazy Element]

delta hedging is very easy for machines too especially for big shops with low fees.

It's not the process of the delta hedging that requires a human touch here, it's the judgement to pick a stock that might move after hours and is pinning the strike. More importantly, even if every aspect could be automated, nobody in the right mind would implement it as a strategy for a market making shop because of capacity.