Scalping OTM time premium near close on expiration Friday

Quote from Took2Summit:

why didnt you just let it expire worthless? options expire on saturday so on friday close there is still value, stock can have an after market news that makes share price go up before saturday etc..

Did you even read your options disclosure agreement???
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+1. i've said the below story on other options threads on et re this exact same issue (selling otm calls for "free" premium" esp so close to expiry).

a company (not sure the name anymore) announced it was being acquired at 4:01 EST on expiry day. the problem for those who sold a boatload of otm calls for like 0.05 was that those calls were exercised after the market closed and were worth something like $20. can you imagine selling 1k of those calls friday at 3:30 EST, going home and thinking "another easy day selling premium" then coming in monday finding out you owe 1,000*20*100.
 
Quote from turkeyneck:
----Why OTM call won't go worthless on expiration Friday near close?
----expected it to go near worthless at close.
----I lost money on the trade after factoring in commission when I closed it out....
----expected it to trade at $0.05....
----the bid/ask just won't go my way.
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The remaining premium reflects a finite probability that something "weird" can happen from Friday's close to the Saturday,(at noon?), expiration. :cool:
 
Technically while the option expires on Saturday the OCC requires instructions by Friday at 5:30 or 6:30. I can't remember the time.

There was one trade I did where the govt was going to issue a report on Medicare on Friday evening. Expiring options priced in nothing. It was essentially free gamma.

But there's a reason why premium should exist. Just because an option is out of the money, doesn't mean you wont get exercised. You aren't trading max(s-k,0) but rather the right to buy stock which doesn't have to be optimally done. This risk is worth money for an option that's a little out of the money.
 
Be very careful scalping time premiums of high priced stocks with interactive brokers if they are close to in-the-money. They will look at what will happen if you got exercised those options and automatically close the options if you do not have enough margin to hold the long/short position. It does not matter that you have enough margin to hold the call/put spread.

I have gotten burned a couple of times now with this. Maybe my own fault but it would be nice to get a notice of 1 or 2 minutes to close the options yourself. All I can tell is it seems to be about 15-20 minutes before the close.
 
Quote from newwurldmn:

Technically while the option expires on Saturday the OCC requires instructions by Friday at 5:30 or 6:30. I can't remember the time. .
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The cutoff time is 5:30 eastern time on Friday, but many brokerage houses have an earlier internal cutoff for their customers.
 
Quote from trader198:

on expiration friday, what I would say is: avoid OTM. trade ITM is better.

pre-expiration, buy OTM.
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close to the monies that you think will go into them money..
 
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