According to the Wall Street Journal, options volume continues to explode – driven primarily by the growing popularity of short-dated options.
Whether looking to speculate, hedge or collect premiums, options players are increasingly flocking to options that have fewer than 7 days to expiration. And with the proliferation of weekly options and three-times weekly expirations in popular index ETFs like $SPY, $QQQ, and $IWM, traders frequently have the opportunity to trade options expiring within 24 hours!
It is no surprise that these types of short-dated options are attractive to some players. They offer the best characteristics of options: defined risk, leverage, and affordability for even the smallest of traders.
Of course, there is no free lunch. As nice as all the pros are, the cons are equally supersized when the ass-end of gamma smacks your trade in the face. As quickly as profits can accumulate when you nail the timing of one of these trades, any hint of delay for a long options position or fear of swift reversal in a short options position can rapidly erode whatever gains you may have in your position. [Read more…]