Papale on Trading Weeklies

Our regularly scheduled blog will be interrupted today due to massive amounts of NCAA Tournament Basketball.   Due to the extreme nature of this once a year event, all unessential services and programming will be halted until further notice including chores around the house, shuttling kids to activities and anything requiring prolonged movement away from the TV.  Only essential activities such as going to the refrigerator, re-arranging cushions on the couch and monitoring of brackets will be conducted.  Stay tuned for further updates.

Seems these days expiration week comes every week.  Well, in reality I guess it does with the weeklies.  But for those that focus on the standard monthly options tomorrow is the day.  If you carry positions into expiration week you should keep in mind a few things.  First, while the theta can be big, so can the accompanying gamma.  All extrinsic value goes to 0 at expiration so erosion must work off all remaining extrinsic value.  Deltas will settle at either 0 or 1 depending on whether they finish in or out of the money.  So for options close to at the money, the movement of delta can be dramatic as markets determine whether that option will finish in or out of the money.   Strikes outside where the market thinks it will settle trade at their intrinsic value.   Extrinsic value only exists if the market sees a possibility of the underlying reaching that strike by expiration.  With all the interest in weeklies this sort of high octane trading is becoming more commonplace.  Just watch your risk and have a plan to take both profit and loss.

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