What do girls and options have in common?

Options Expiration-

“The girls all get prettier at closing time.”

~ Mickey Gilley ~

Option Expiration Week By J.W. Jones

Option trading is not “just the same as stocks.” It turns on the three primal forces ruling an options trader’s world- time to expiration, price of the underlying, and implied volatility.

As expiration approaches, the forces of time exert their strongest influence of the cycle on a trader’s positions. In today’s blog, written as August expiration is but a few days away, I want to call attention to some of the practical considerations traders would be well advised to incorporate into their trading plan.

Pundits have long cited the aphorism that there are only two sure things in life- death and taxes. Options traders must incorporate a third inevitability- the time component (aka the extrinsic component) of an option premium goes to zero at the closing bell of options expiration.  This occurrence is neither negotiable nor avoidable and it occurs with clockwork like precision.

A recent change to the market has introduced an important new element to the long standing monthly expiration cycle. The tremendous popularity of weekly options has rendered every Friday the end of an expiration cycle.

It is critically important to recognize this new phenomenon because it allows tailoring of strategies to fit more precisely the anticipated time frame in which the trader’s hypotheses play out.

Let us consider some of the practical implications of this cyclical pattern. I’ve discussed before in this blog the fact that erosion of time premium is not linear across the life of an option but accelerates dramatically as expiration approaches. Expiration week is where this acceleration reaches its greatest pace as it

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