Trading options at expiry
A lot of traders won't trade options near expiration, but Michael Thomsett of ThomsetOptions. Time to expiration and cost of the option-these are the two factors every options trader struggles with and has to balance. Close to expiration, it's difficult to get the kind of price movement you need for profits, given offsetting time decay.
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Far from expiration, option premium is quite high. Close-to-expiration options are quite advantageous for swing trading , however. If you use ATM or even slightly ITM contracts, you get the best of both worlds: Swing traders usually employ shares of stock to play short-term price movement.
Long stock is bought at the bottom of the swing and sold at the top; and shorted stock is sold at the top of the swing and then bought to close at the bottom. Because shorting stock is expensive and risky, many swing traders only play the upswing side, meaning they miss out on half of all swings.
Options solve this problem. In its most basic form, long calls and long puts provide low risk and high leverage, also letting you play upswings and downswings.
Risk is limited to the relatively low cost of each option. Because swing trading is based on a three-to-five-day short-term price movement, soon-to-expire ATM options are ideal, if expiration is going to take place within a couple of weeks.
Trading Options at Expiration: Strategies and Models for Winning the Endgame by Jeff Augen — Reviews, Discussion, Bookclubs, Lists
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