Saturday, 21 September 2013

HOW TO TRADE IN OPTION NEAR EXPIRY

Theta changes at an exponential rate. In English, that means that the time value of any options you’re holding will decay more quickly the closer those options are to expiration. If you’re an option buyer, that means you want the move in the underlying to happen sooner rather than later, because even if you’re right about the direction of an underlying, those long calls you bought last month might still be losers even if your stock makes a big move today, because once you’re close to expiration there will be very little time premium left in those calls....


Conversely, if you’re an options seller, it might seem pretty intuitive to say that since theta accrues more quickly near expiration, you should just sit on your hands until the Tuesday before expiration, and then go out and sell the heck out of every option you can find. When it comes to trading near expiration, there are almost as many opinions about what to do as there are traders.  I'm a strong believer that it's best to avoid holding any positions into expiration, but that's especially true for short positions. It is adviced to start trading in next series from the Monday of expiry week.
More about Option Call Put tips on google+

24 comments:

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