Sometimes “expired” doesn’t necessarily mean “gone”
Volatile winds are still blowing through Wall Street this October, even as markets creep around record highs. As the month winds down and All Hallows’ Eve nears, options traders will be casting out contracts and hoping to lure in premiums.
The Zombie
Sometimes “expired” doesn’t necessarily mean “gone.” Traders can roll options out, up, or down to revive them. In fact, it’s possible to roll an option up and out, both electrocuting it and injecting it with a chemical component. Be sure you’re not doing it just to extend the contract’s impending doom, however.
The Slow Decay
For most options trades, the quiet march toward death gradually decreases their value. Known as time decay, or theta, it is a natural progression for all options contracts as they near their expiration. With no existential relief from the passage of time, it’s important to tread lightly as not to close out-of-the-money.
The Sharp Talons
The Iron Condor is one of the most popular options trading strategies. With two vertical spreads making up the wings, this large scavenger waits for carrion to enter its domain. This strategy has limited upside and downside risk due to the high and low strike priced options included in the trade, which combine to protect against any significant moves in either direction.
The Witch’s Potion
It’s possible for a trader to combine several ingredients for powerful results, especially when they have a specific target (or spell) in mind. A long call spread and a long put spread both involve buying and selling simultaneously. Some witches have been known to add a little fig leaf to their cauldron, putting up wards against potential losses.
The Seer
At our own Schaeffer’s lair, we’ve found advantage in an area that until recently was generally considered nothing more than hocus pocus — sentiment. When combined with fundamental and technical factors (a 3-tiered methodology we call Expectational Analysis®), it becomes a powerful contrarian tool for analyzing stocks, sectors, or the overall market.