Selling OTM just before expiration

Discussion in 'Options' started by cabkraft, Feb 14, 2008.

  1. cabkraft


    Intermediate trade here- Hey does anybody sell OTM options on day of expiration (like tomorrow)- where there is very little chance it moves- I was thinking about something with a price tag of maybe .15 or .20 and selling 10 or 20 contracts and picking up a quick $300 or $400-

    Like AAPL 135 feb call i think going for around .15 (earlier today) - other than obvious risk for a big volatile move- but if you feel stongly that the stock cant get there by end of day you could make the gamble.

    Anybody done this- or any thoughts?
  2. You will make $400 a month for 3 or 4 months and then one month you will lose $1,600 on the move you did not expect. The cycle will often repeat itself. You can find opportunities here and there but to do it every month will lead to net losses as the losers will be big.
  3. Selling OTM options the day of expiration is not the best way to take advantage of time decay.

    Also, look at how much money you are putting at risk for the $300-400 return.
  4. There is a fund running automation in which they sell large numbers of atm straddles when the spot hits a strike on the morning of expiration. They average 500-700 positions every third Friday. I've seen their PnL and it's astronomical.
  5. How do they manage 500 - 700 adjustments, of course less than that on stocks that move a lot. Do they put a straddle stop loss on the day for each one automatically as well and just hope for enough lottery tickets to hit, plus small winners and lots of capped losers?
  6. cabkraft


    yeah i know what you guys are saying about risk- I have a covered call expiring tomorrow and know this stock well- i think an OTM call tomorrow will go for about .20 and it is 10% OTM- I watch and know the stock I just cant see it moving like that- it just seems like easy money on the table to take. But I agree unless you really have a good feel you could get killed.
  7. You certainly can look for unique situations and try it, you are not going to blow out your portfolio if you do not overleverage yourself. But overall scrambling for that .20 could lead to a nice slap in the ass if you are not careful :D
  8. I'm also trying to figure out how they can adjust any of those positions if the price moves against them on exp day; if they adj to different strikes that are actually worth more than zero they run the risk of price blowing past those too- are they hedging with underlying or next month options?
  9. I can't elaborate as my family is an investor in the fund.
  10. Thats alright - understood, sounds impressive though
    #10     Feb 14, 2008