Expiration Day

Discussion in 'Options' started by spindr0, May 26, 2009.

  1. spindr0


    Interesting article in May issue of SFO magazine suggesting that there's an IV pattern on expiration day for stocks over $50 with large open interest. Barring major news, IV tends to increase until 11 AM, drops toward noon, levels off for 2+ hours and then drops sharply into the close. So if you're an expiration day trader, long positions may be best suited for the AM and short positions for the afternoon (straddles). It also suggests that ratio spreads may be a good vehicle as well.

    Obviously, one should not contemplate any of this unless one fully understands the ramifications of the strategy and has the experience and discipline to manage the risk.
  2. MTE


    In which month? The expiring one?

    I'd say that in the expiring month the IV is not important as it is all about gamma on expiration day. IV just reacts to the moves in the underlying. For example, in the morning there's still plenty of time for the stock to make a move and for the options to expire ITM, and as we get closer to the end of day the last bits of premium get sucked out as it becomes fairly certain which options will expire ITM/OTM.

    OK, now that I've expressed my opinion, I'm gonna look up and read this article. :)
  3. I believe the author of the article has recently penned a book on the same topic.
  4. spindr0


    yeh, in atticus's favorite month where options expire on Tuesday (g). OK, sorry. Couldn't resist that one. Yep, expiring options.

    Obviously I gave the article short shrift. There are more details and maybe it's all a lot of BS... or not.

    It reminded me of some posts about reverse spreads that I read about on Yahoo 4, maybe 5 years ago, by some know-it-all trader named born29. I said "WTF?" to myself since I vaguely recalled a 2-3 paragraph blurb about them that I read 20+ years ago in McMillan's tome. McMillan panned them, writing that "No serious strategist employs this strategy by itself as a profit making vehicle. For some reason, the strategy often appeals to the novice as "something to try," and is being included here as something not to try.

    HAH! I knew it! Born29 was a novice trader! I had him in my sights, right where I wanted him!!!

    Getting back to reverse calendars... Unfortunately, since it's an expiration week strategy, it took a few months to see if the strategy had any realistic possibilities. Working with another wannabe Yahoo expert (g), we realized that given the right set up, it was indeed quite viable for EA's the last week before expiration. Soooo, it turns out that born again guy really knew what * I * was talking about (big wink). And maybe, this expiration day strategy in SFO also has a place in the playbook. It may take a few months to figure that out.

    If you read the article, I'd appreciate your take on it.

  5. MTE


    :D :D :D
    Good one!

    Btw, I haven't read the article yet.
  6. I have not seen the article yet, but the book would be Jeff Augen's Trading Options at Expiration: Strategies and Models for Winning the Endgame.

    I've read it and it had some pretty interesting ideas.
  7. spindr0


    Yeh, that's the guy.

    Hey MTE, can you throw in a book review as well with your evaluation of the SFO article? :confused:

    No hurry. We can wait until tomorrow. :D
  8. MTE


  9. spindr0


    Excel is linked to my platform so it's in real time. Does anyone have an idea how to capture quotes (say every 5 minutes) from one file and append and save them to another? The idea would be that at the end of the day there would be a snapshot taken at every 5 minute interval for the day. The purpose of this would be to collect expiration day quotes so that I could observe the IV decay discussed in the aforementioned article. TIA.
  10. I don't follow why you need different files. Why not just set a timer to copy the Excel quotes every 5 minutes into different columns or rows?

    #10     May 30, 2009