it amazes me how many people have been jumping on the OP saying that options are always priced fairly. especially during expiration week. have you people actually ever traded or have you just read books about options? there is no "fair value" like everybody like to believe when comparing trade prices vs "theo". I've seen half the decay come out on the first 20 mins after the open, i've seen vols explode in that same time frame. taking on risk and being able to manage it is where you make money. key is managing your position. those front month options will have no vol very shortly. i don't care if you are long or short them.
I donât think anyone is jumping on him for anything about FV or TV pricing. I donât think anyone has said unequivocally priced perfectly particularly on expiration day. Quite frankly to me itâs obvious that the OP does not give a hoot about TV or FV. In the real world, when I was a MM I used to run my theoretical with an IV of zero starting on Friday morning. That eliminates the Vega and gamma. Therefore the delta was either 1.0 or 0 or 0.0 depending where you were in relation to the strike. FV was established more by the volume quotient than any pricing model. I do agree that managing your residual risk is the key factor, and you can make money being both long or short those options on expiration day. Being long the options does not mean sitting there holding them and hoping they go in the money or trade higher than what you paid. Long options give you the ability to trade the underlying with limited risk. It all depends on your experience, on the other hand there is no question that your potential to make greater sums is being long them.
TOS shows the set on Thursday before expiration last week of around 5.25, so that would be the best case scenario I think. If you pay 5.25, the max you can make is 4.75 on the trade assuming you are doing a $10 wide butterfly. How'd you come up with the 2k+ number?
If your ownership of stocks at specific lower prices is acceptable then selling puts is a good idea. With one week until expiration, for ATM, you can get approximately 1/2 the premium as compared to one month (all other factors remaining the same). This applies less the more you go OTM. If you have several stocks in a sector, you have the opportunity to scalp on anything that makes a quick move in your favor and then sell puts on another in the group. One caveat... never sell more than you can eat.
Gazelle, I've attached the picture from TOS - thinkback. Hopefully I've used it correctly. 2/16 trade date, 3.15 debit, 530/540/550 butterfly yields 2075 p/l open. if you can't get the picture send me your email address and I'll send you a screen shot.
ha ha something strange happened.. the 500 BIDU calls did go down to the wire.. I was short the calls. they were 5 -10 cents all day..then at close BIDU surged.. and closed at 500.15.. in AH it was 1.50 up.. but funny thnig was , I was not called.. I guess as much as I was scared, the folks who had the calls . decided agianst calling them , as if BIDU gapped down, they wud be bag holders. bidu gapped up on MONDAY.. then down on TUE...