Swimming With The Wall Street Sharks: Trading Options Expiration Week

Discussion in 'Stock Market Education' started by inthemoneystocks, Aug 10, 2014.

  1. inthemoneystocks

    inthemoneystocks Member

    Mar 2014
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    The week coming up is the monthly expiration for options contracts, known as "Options X." This is a week where the major institutions will be able to move certain stocks up or down based on the amount of Call or Put activity for Friday's expiration.

    When it comes to trading options, the facts is that amateur options traders with minimal capital will try and play the near term expiration's, as the premium's are "cheap." But these cheaply priced options contract are also very risky. So on Monday, it is expected to see buying activity of Puts on stocks like Apple Inc. (NASDAQ:AAPL), Google Inc. (NASDAQ:GOOG), or 3D Systems Corporation (NYSE:DDD) which have all been beaten up lately. The big institutions have enough capital to move these stocks the opposite direction of the Put holders for a few days, making themselves money with Call options while making those Put options expire worthless.

    This week, you should also watch for stocks and sectors that get phony upgrades and downgrades, along with other media created Wall Street hype during this week. Remember, options expiration is one of the most manipulated and volatile times in the market. It certainly does not mean money can't be made this week, however, if you are going to trade, take heed of this reality which most amateurs disregard to their fault. As us traders say, options expiration is the Real Shark Week on Wall Street. So if you are going to swim with the big fish this week, make sure you sharpen your harpoon and properly prepare for battle.

    Evan Poechman
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

    Feb 2014
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    I like to use puts to protect more volatile long stock positions ahead of things like earnings, FDA decisions, clinical trials, etc - or just to protect against the downside in general in more volatile long stock positions.

    I also use calls to speculate on the upside on things like small biotechs ahead of such things. I will typically buy both calls and puts - usually more calls than puts on lower priced stocks, since the downside is limited on a low-priced stock, while the upside potential can be much greater.

    I've seen $50-60 dollar biotechs go up to $300-400 literally overnight, and $4-6 biotechs go up into the twenties briefly.

    I may occasionally write covered calls, generally on less volatile stocks or stocks I'm more bearish on.

    For the novice, they need to be aware of the difference between buying and selling options. Buying an option gives one the RIGHT, while selling an option gives one an OBLIGATION if things happen a certain way.

    I'd generally advise beginners and investors with limited amounts of capital to stick to more basic investing.

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