Traders Taking Full Advantage of Multiple Option Expirations

The big trading news in Chicago, for people over a certain age, was CME Group announcing a majority of their trading pits to permanently close. This led to many seasoned market participants recalling their first time on the trading floor, as well as the energy felt when entering the floor each day. The trading world has evolved due to technology, with the closing of the pits being an unfortunate casualty, but many aspects of trading have improved due to technology, such as the introduction of multiple option expirations.

Historically, the third Friday of each month was option expiration week. Much like the CME pits, this is more of an example of how things use to be done than how they are today. Any active options market has options available for trading that expire each Friday for the next few weeks.

This allows traders the ability to pinpoint their trading to match up with a certain event or time frame better than in the past. Also, this allows traders the ability to take positions that will expire in just a few days.

Some markets, like the Nasdaq-100 (NDX), have options expiring multiple times a week. Barring the holidays, NDX options expire every Monday, Wednesday, and Friday each week.

There are strategies that are very attractive based on an option expiring in the next day or two and now those opportunities are available multiple times a week. Just this past week, there were several block NDX option trades that were initiated with little time remaining to expiration and held through expiration.

Most of these strategies centred on selling options spreads to benefit from time value decay.

Selling Call and Put Option Spreads

Bear Call Spread (bearish) – Same day expiration

On Monday May 3, about 20 minutes into the trading day, a trader sold over 400 NDX May 3 13920 calls for 15.60 and purchased the same number of May 3 13940 calls for 11.10, taking in a credit of 4.50. NDX was near 13880 when the trade was executed.

As long as NDX closed under this level, the trade realizes a profit equal to that credit, while the risk to this trade was a loss of 15.50 if NDX finished the day over 13940.

Note the closing price for NDX is well within the area where the maximum profit on this trade was realized.

Bull Put Spread (bullish) – Same day expiration

Another Monday trade that focused on how NDX fared over the course of the day was executed about 90 minutes into the trading day and again used the options that expired on the close the same day.

With NDX at 13815, a trader sold almost 300 NDX May 3 13730 puts for 3.3,8 purchasing the same number of May 3 13700 puts for 2.13, taking in a credit of 1.25. The payoff on the close is displayed below.

The dollar risk for this trade, relative to the reward, is pretty substantial, with a loss of 28.75 incurred if NDX is below 13700 at expiration. This price was never in danger, as NDX spent the balance of the day near 13800.

Bull Put Spread (bullish) – 3 days expiration

On Tuesday May 4, a large vertical spread using the May 7 NDX options was executed when NDX was around 13440. The trader sold 4000 NDX May 7 12800 puts for 13.70 and purchased 4000 of the May 7 12750 puts for 12.30 taking in a credit of 1.40. The following payout is based on the trade being held through the close on Friday May 7.

This trade did risk 48.75 to make 1.25 per spread, but the short strike of the spread was 4.75% lower than where NDX was trading when the trade was executed.

Also, this trader probably did not worry too much over the course of the week as the low for NDX over the life of the trade came shortly after the trade was executed at 13,396.11. The final outcome for this trade was a good one as NDX finished the week at 13,719.63.

Bull Put Spread (bullish) – Same day expiration

Finally, on Friday the 7, a trader put on a 200 lot bull put spread that expired that afternoon in two separate trades of 100 each. The first lot occurred with NDX at 13,780 with the NDX May 7 13640 puts sold for 6.00 and the May 7 13630 puts purchased at 5.30, resulting in a net credit of 0.70. A couple of hours later, with NDX at 13750, the 13640 puts were sold for 6.50 and the 13630 purchased for 5.80, again resulting in a credit of 0.70.

This trade worked out well with NDX closing at 13,719.63 on the day and the lowest NDX print falling at 13,669.78, which may have been uncomfortably close to the short strike of this spread but did not prompt an exit trade.

These are just a few of the short-dated NDX spreads that were executed and expired profitably that would not have been possible without multiple expirations available during the week.

The CME pits may be a victim to technology and some seasoned traders will shed a nostalgic tear or two for what use to be. However, the majority of market participants continue to benefit from more ways to trade and can thank advances in technology for these new opportunities.

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Introduction to Options

Basic options terminology and how one can get started on options with a small capital account.

Beginners Guide to Trading Index Options

Index options provide investors broad based exposure to specific sectors and indices with the benefits of diversification while removing single stock risk.

Grow a Small Options Account Consistently and Confidently

Trading index options is now made extremely affordable. Learn how you can start trading index options with a small account size through the usage of Credit Spreads.

Maximize Your Index Exposure with Index Options

Explore how Iindex options can provide investors with access to deep liquidity and unique advantages.

Top 3 Strategies for Index Options

Here are the top 3 index options trading strategies that a beginner option trader with a small account size can execute.

Traders Taking Full Advantage of Multiple Option Expirations

There are strategies that are very attractive based on an option expiring in the next day or two and now those opportunities are available multiple times a week.

How to Trade Index Options

Which are the popular index option strategies that a beginner option trader can execute? In this hour-long video, we do a detailed step-by-step tutorial on trading the Nasdaq vs. S&P 500 index.

Disclaimer: Nasdaq may, from time to time, exercise reasonable discretion as it deems appropriate in order to ensure Index integrity including but not limited to quantitative inclusion criteria. Nasdaq may also, due to special circumstances, if deemed essential, apply discretionary adjustments to ensure and maintain the high quality of the index construction and calculation. Nasdaq does not guarantee that any Index accurately reflects future market performance. Neither Nasdaq, Inc. nor any of its affiliates (collectively “Nasdaq”) makes any recommendation to buy or sell any security or any representation about the financial condition of any company. Investors should undertake their own due diligence and carefully evaluate companies before investing. The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.

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