Trading options during the last few days before expiration

J

jbtrader23

Do any of you trade options (simply buying puts or calls) during the last few days before expiration? In terms of a thrill factor, it ranks pretty high. I've never bought any on the friday of expiration, but have done so as late as wednesday. To me, the idea of turning an option that I purchased for an 1/8 or 1/4 that goes to 50 cents or a dollar is incredible. Obviously, you need good strategies to do so, or else you won't be trading for very long.

Do you guys have any stories of a miraculous buy on friday that went up 300-500%? A hail mary type play. Or maybe an option you paid 1/4 for that went up to $5 or $7. What have been your biggest percentage winners?
 
I covered a delta long position on the Friday before the crash by buying a few hundred puts for .25....they exploded and I sold the first hundred for around 4.00 on Monday....actually made the newspaper that week!

However.....options are meant to be sold...and the most of us on the trading floor would look to go sell those 1/8' and teenies that were left come Friday.

Don
 
Originally posted by ChrisM
Don,

how far do You go if they move against You :))) ?
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If you're talking about selling options right before expiration for a few cents, we only do that if we are on the floor, and be sure that our risk is only a few cents (if that). The only time you can get caught is when the stock goes through the strike price Friday afternoon, or there is news out...

Don
 
I have unsuccessfully tried to buy options on OEF (Option Expiration Friday). My experiance is not to do it on OEF and day before OEF.

I normally only buy options, but in this case I agree with Don Bright, selling is the only thing to do close to expiration.

Sometimes you are "lucky" and can make a couple of 100% monday-wednesday during expiration week :D
 
Several years ago I bought EK puts the week of expiration which was also the week earnings were to be announced. They were OTM puts priced at an 1/8 or 1/4, don't remember. EK had been losing business to Fuji so the miss was large and the puts went to $3 or $4.

Buying cheap options earning and expiration week seems the only way to play as a buyer, possibility of news making for a large move, other than that, selling them has percentage in your favor but not worth the risk IMO.
 
You mentioned the "thrill factor", and yes it does have a thrill factor. But.......

The way it seems to work is that stocks start gravitating towards "sticky strikes" on thursday and friday of expiration week. The sticky strikes are usually where there is a lot of open interest. Look up the "max pain"theory on the web. It is not a foolproof theory, but the general concept is that stocks tend to move to make the most possible options worthless during the last two days before expiration. Almost all options expire worthless, and that is especially true of the lowest priced options. Floor traders, like Don said, can sell them because they have massive margin and don't pay commissions. however, in rare cases a news event can happen and the losses can be huge. You could sell them and make money 11 times and on the 12th time you lose all your profits. In the 1987 example Don mentioned, somebody was on the other side of that. There are some articles out there on the web, James Cramer did a few articles on it.
 
Well written posts,especially ''sticky strike''

Ps. Don you wrote in the last several years, in Technical Analysis of stocks & commodoties mag.

Remember you wrote something like option market makers are some of the best traders in the world ! [90% winners??]

Don care to share some practical simple ways to profit from that for elite traders. ????????May or may not involve options,or moving to Chicago. Thanks for Keeping IT SIMPLE.

Hope this helps.
______________________

''Enjoy your reading''- Alan Greenburg-Bear Stearns:)
 
I think you need to go to hollywood for the "great stories" of making 400% on a x day for options.

In fact, I stop trading the X date options. Meaning, in july, like right now, I stop trading July 02 by noon. Why, because they can trap you, lean on your order and hold you into the close...thus, expiring worthless.

How do they do that, they will cross and lock the market all day long.

A distint friend by the name of Nedierhoffer once played on the edge in options....we all know what happen to VIC. And he is a intelligent man who is still trading and doing well.
 
Originally posted by Don Bright


If you're talking about selling options right before expiration for a few cents, we only do that if we are on the floor, and be sure that our risk is only a few cents (if that). The only time you can get caught is when the stock goes through the strike price Friday afternoon, or there is news out...

Don
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Thx Don, that`s what I thought.
 
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