This is in reference to BUYERS of calls/puts on expiration Friday. Volume and Open Interest on certain liquid equities is through the roof. I've made some money trading on Friday but it makes me very uncomfortable. Profits are quick, but time decay is really at play and can counter any profit very quickly. Volatility does help, but it can also be the enemy. Any buyers here who trade these intra day on Friday and love the price and the action? Any word of caution or advice for those who may want to try this? Would really like to hear pros and cons from those who go with OTM options.
Honestly, if you have a method of making consistent money on expiration day, you should keep it to yourself. Have the confidence to run with it.
I have been looking at SPX&SPY option expiry for a bit, but have not really given it serious study yet. All I can say, is that, there is definitely an identifiable pattern for a target price range for SPX and SPY at Friday expirations - I have not looked at individual stocks, but once stock is correlated with SPX then it should show similar characteristics? However, having asked a few questions on this site, in various threads, no one has answered my questions in relation to SPX OI - which I believe is one of the keys to understanding what the MM's are doing and where they will likely finish the week for options expiry. I have some new thoughts that have just come up recently from some looking, but unless the real option experts come out with some words on OI and expiry, I am not going to say what they are - there is def an edge for trading on SPX Friday expiration day, you sure have that bit right J_S
A very quick glance - SPY finish tomorrow around 205.50 level. Could be off by a mile, but let's see where it actually finishes, as the only way to learn is by identifying a price range pre Friday, see where it actually finishes, and then try and work out why the difference happened - simple really Fools call market direction, but wise auld owels take heed of the potential Friday range! It is all controlled during normal market times - kinda like the run up the last few days after the big brexit drop! I would not be surprised to see more down next week, haven't a clue if it will actually happen, but would not be one bit surprised. J_S
IMO ......... OTM weeklies are better suited for long trades a couple of days duration - not day trading. You want to be in the trade for overnight gaps.
"Profits are quick, but time decay is really at play and can counter any profit very quickly" Cat, we all have our own techniques, but what I like to do on Fridays is first identify the stock to be played, again, AAPL, NFLX, and FB are my bitches because they move nicely and to a great extent, if you have watched them all week and have a good feel for the VAP (volume at price) and max pain for the OI you can get a feel for where they will close by 11AM. My vehicle to trade these is, and it costs more money and the percentage returns are lower, but I go to the first strike thats ITM that has negligible time decay. Sometimes these will be $3 or $4 in the money, but time value will be a dime or so. And they obviously mirror the underlying stock. Its pretty easy to nail a $0.50 move on these pigs in one direction or the other. So take FB for example. If you think its going to close at $114.50 and it squeeks up to $115.09, I'll buy 10 of the $119 puts for $4.07ish. Costs about $4090 after commissions. And then ride it down. If I make $300 after commissions on a $0.32 move.... hey I'm happy. Not gonna get rich, but it beats working for a living. Pretty low risk if you have a very strong feel for how the stock moves and you put a tight mnemonic stop on the negative side. fwiw. -vz
You couldn't have known, it was just an educated guess - same as mine for SPY to fin at 205.50, but this time I was wrong - looking at OI during the day it was becoming more obvious that price would not be above 210 for the close. Either way, you made some money, which is always the main thing. J_S
Hopefully you bought options a couple of months out because I made the exact deduction as you did. SPY will likely be around 205.50 - 206 by the end of next week.