Monday after Expiration Friday

I know when I took the 1-5 classes, Gary said NOT to trade options on the Monday after expiration Friday. My question is - does that apply to both short chart trading and big chart trading even if you are buying out in time a couple of months.

For example, you have a HRFP that sets up on the Friday close. Do you wait till Tuesday to play it or jump in on Monday, even though it's the day after expiration Friday?

If you are trading big charts and buying the correct amount of time.....5-6 months. Opex and the Monday following really have no bearing on the position you are buying. Buy away if you have the correct evidence for your trade!

I agree with fireman. The reason behind waiting the Monday following expiration was to allow for pricing adjustments. If that still happens it will be on the front month or following month options (in this case Jan and maybe Feb). If you are buying at least Mar or beyond, preferably 5 to 6 months out, then you should be okay. I personally have no idea if Jan or Feb will actually take a hit on Monday following expiration. The old rules said hold off so I would recommend doing so if you are not buying time. It never hurts to be a bit conservative. That said I recall listening to a discussions among former floor traders and market makers regarding basic weekend pricing adjustments (time decay for Saturday and Sunday). Typically the time decay that would occur over a weekend is baked into the price by 12-1PM on the Friday before (they accelerate the decay that would occur over the weekend on Friday). The weekend has already been factored in by close of business on Friday. Is any of this actually true? I really don't know but it makes sense. Just communicating what was said by 2 or 3 former market makers. If any of it is true then I would think that some portion of any price adjustment due to monthly roll @ expiration would be factored in by close of business on expiration Friday as well. Just speculating of course. The only time I am 100% positive that you will see an adjustment in price on a given day is immediately following an earnings release on front month options once the uncertainty has been removed.

So I would say learn what you are best at doing and do that over and over and over and over and over until you can do it in your sleep.



Edited 1 time(s). Last edit at 05/07/2015 09:25AM by Darcy2.

Thank you all for your responses.

Darcy - when you trade short charts, do you always use the monthly options or do you also use the weeklies?

I use the monthly options...always.

How close to expiration do you switch to the next month?

I'm trying to get a better grasp of short chart trading and am trying to figure out why you don't just use the weeklies being that the investment would be smaller. Is it because of quick time decay? But then you're usually only in for a few hours.

Thank you for all your help.



Edited 1 time(s). Last edit at 12/23/2014 11:52AM by PastorP.

I make great $$ on expiration week especially on Thursday. You need good volume on the STOCK.



Edited 3 time(s). Last edit at 05/07/2015 09:26AM by Darcy2.

Darcy, I have two questions and I hope I'm not being a pain, just trying to soak it all in.

The first - If you play the options all the way to the Thursday before expiration and like you say you make great $$ that last week, why would you not just use the weekly options the rest of the weeks instead of the monthly, being that that is basically what you are doing on that last week? Are weeklies not as good to use?

The second is, why did you buy calls on AMZN at 10:40 when all the signals pointed down and it kept on going down till 11:00? That seems to break all your rules of having the 21 and 34 set up in your direction and an E on 3,5,8,10. I don't see n E UP on the 5 minute till at least 12:05.

Thank you.

ANS 1: Weeklies do not move as well. I just do not like them.


You have a great Christmas.



Edited 2 time(s). Last edit at 05/07/2015 09:26AM by Darcy2.

Pastor,

I think the key is to put the correct pieces together. If you are trading Darcy style using momentum stocks and have a signal then you should be okay trading Monday after expiration. It is either going to work or it's not and you are not waiting around for "kind of / should of" trades. If you are trading big charts and buying time you will also be okay. If you are trying to trading bigger charts with very little time in your option you can easily get burned. Big charts requires patience. You might be in for a day or two before the move starts to go. If you had bought Jan this past Monday on a big chart trade that meandered around for a few days before realizing it wasn't really going to move then you can easily loose money (bid / ask spread, monthly expiration roll, accelerated time decay, etc.). It can actually go in your direction and you still lose money if it does not move well enough.

As for weeklies I rarely trade them being a big chart trader but will sell. I have on occasion traded using short chart techniques but it is rare. If you decide to go down that path and explore weeklies then you need relative good daily volume, good open interest, and tight bid/ask spreads. The problem with most weeklies are that they are thinly traded with wide spreads (i.e, illiquid). Easy to lose money. You are basically limited to index options or stocks like AAPL that have great volume pretty much anywhere you look in the option chain. What you don't want is a dollar wide spreads, 50 total open interest, and no volume for today. If you see this then run away, don't walk, and go find something else. Easiest place to lose money is on an illiquid anything (stock or option). Everything can go your way but if there is not a market then the MM can price whatever he/she wants and may not hit your bid when you go to sell. You will be much better off paying a bit more for a monthly or another weekly that will allow you exit when it is time to sell.