4 Must Know Options Expiration Day Traps To Avoid

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How to trade intraday in options during options expiry week since premium will fall even for a small price action. This is for only buying call options trading strategies for expiration days puts not for writing.

In the money style nifty options are best when expiry is near, simple reason behind this is Nifty options has the premium for time days left for expiry. When the expiry comes near this premium also gets reduced and if you have observed then you will find the all out of money nifty options expire worthlessly i.

If you chose in the money nifty options, they will at least have the real value in it. Like Nifty future is trading at level, nifty call option must have value of at least If Nifty future moves to then nifty call option will be trading at least at But if nifty future is trading at and nifty call options would be at 2 or 3 only and if nifty expires at then nifty call will become worthless at expiry. Next thing you should check is any important global data that is to be released on that expiry day, if yes then see at what time data will be made publicly available.

Because at this time market may give wide swing in terms of nifty it may be about 40 to 50 points, enough to make huge money. If news is bad then just buy in the money put option may be 10 lots, you may notice there is big difference in quantities of call and put option. This is because traders react slowly to positive news, where as traders reaction towards negative news is extremely vigorous. So there is high amount of risk involved and also there is no guarantee that market will react to global news.

We were able to gain extremely high returns on nifty option. Trader should not buy or sell in expiry week. In case of Nifty Index Option, if nifty moves in a range then it's premium options trading strategies for expiration days rapidly in expiry week. Better trade in Nifty future in expiry week. To trade in Index Options trader should know about Nifty trend first.

Then only you can take any position in call or put option. Nifty trend and Bank nifty Trend is updated daily here for free. First Buy only call or put. On expiry day and next day dont do trading. On expiry day, you may options trading strategies for expiration days whole premium, because it will be ZERO till market closing if you miss the right trade. I would like to options trading strategies for expiration days my own strategy, strategy-nifty-expiry.

And be careful after 2: Here is my strategy: This is for only buying call and puts General. Hi Arun In the money style nifty options are best when expiry is near, simple reason behind this is Nifty options has the premium for time days left for expiry.

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To make money in options trading it's not just stock selection that can cause risk, but also option selection Many seasoned option traders will forego the riverboat casino that is options expiration and only trade options that have more than 2 weeks left to expiration. This holds especially true for "income" type trades that are short gamma by nature-- if you try and milk out every last penny of an income trade, you will run the risk of getting cut by the gamma knife edge and letting profits turn to losses in the blink of an eye.

The same siren song can occur for directional option traders. You may look at near term options and say they are "cheap" and offer plenty of leverage for the cost. But odds are you are neglecting the theta cost of those options, and the actual odds that you have on the position. Or flip it around, you could think that since an option has a theta of with 4 days left to expiration, that somehow you'll be able to make 50 bucks a day just by selling those options, without any respect to the gamma risks in selling short term options.

The desire for newer traders to trade short term options is compounded by the fact that weekly options have become much more widespread in many options, so every week can behave like options expiration.

We'll dive a little further into option greeks so you can get a better understanding of what risks you take when trading short term. Gamma is a stock option greek that makes options trading so fun. It can be referred to as the "acceleration" of the option. If you are long gamma, you want fast moves; if you are short gamma, you want the underlying not to move at all. It's also known as the second derivative, which doesn't mean much unless you are viewing a risk graph:. Gamma is a wonderful thing, and it is directly related to the amount of time decay available in an option.

You can consider gamma to be like fire: But if it gets out of control, it can be a very destructive force. What does this tell us? On out of the money options, the gamma will start to decay, as those options lose their effectiveness. But as we approach options expiration, gamma drastically increases on at the money options.

This increase is what I affectionately term the "gamma knife edge," and it's where many new option traders get cut. Remember how I said gamma and theta were linked? Here's a chart of theta over time:. So not only do you have a significant increase in gamma, you also have a much larger amount of time decay in options.

Funny things start happening to options as we approach expiration. The pricing models start to get a little weird, and you could potentially be taking on more risk than you thought-- regardless of whether you are an option buyer or seller. Regardless of your trading style-- if you are a new options trader and just beginning to understand the mechanics of the options market, stay away from short term options.

Opex trading and dancing around the gamma knife edge is a dark art that requires a level of agility that isn't often seen in new option traders. Short Term Risks Many seasoned option traders will forego the riverboat casino that is options expiration and only trade options that have more than 2 weeks left to expiration. This point leads me to the next principle new option trades should follow: Don't Trade Close to Expiration We'll dive a little further into option greeks so you can get a better understanding of what risks you take when trading short term.

The Gamma Knife Edge Gamma is a stock option greek that makes options trading so fun. It's also known as the second derivative, which doesn't mean much unless you are viewing a risk graph: Where It Gets Tricky The chart below shows the gamma of a call option buy, plotted over time: See the other side Remember how I said gamma and theta were linked?

Here's a chart of theta over time: Let's move on to the next lesson so you don't treat the market as a casino