Expiration Day Fireworks

Sean McLaughlin
April 19, 2023

Friday is April monthly options expiration day.

It used to be a big day. Back in the day (cue old person lecturing) we used to only have monthly options expirations. And because of this, the third Friday of every month tended to offer up some fireworks on the regular.

These days, daily expiring index options and weekly expiring stock options have kinda taken the starch out of the monthly happening. Boo.

Call me old fashioned (just don’t call me old!), but I still prefer to do my directional options trades – and most of my delta-neutral option spreads – in regular ol’ monthly expirations. And there seem to be plenty of traders out there like me because we still see the majority of the open interest in the monthlies.

I’m bringing this up because I’ve got some April long calls on the books that are still working for me (barely).

I like to structure my “long-term” trades (which I define as anything longer than 2 weeks in duration) such that I don’t need to micromanage them. I don’t want to follow every tick. I’m busy with other things during the day, and I value my headspace too highly.

We’ve talked about this before, but to quickly reiterate: I can achieve this state by positioning myself in defined risk spreads, and, perhaps more importantly, being comfortable with the full amount of risk I’m taking.

These conditions remain true most of the time I’m in these trades.

However, when it changes is when the calendar turns to a new month and I’ve got a trade on with options that expire in this new month.

It becomes decision time.

For long premium plays (think long calls, debit spreads, etc), the first thing I look at: is the long option in the money, meaning is the underlying instrument trading beyond my strike price? If not, the decision is simple – exit the trade if there’s any premium left in it. Out-of-the-money long options will rapidly decay in value as we approach expiration. If there’s no premium left, there’s nothing to do. It’s now a lottery ticket.

However, if the long option is in the money, then I start watching it like a hawk. Generally speaking, I’ll continue holding the position as long as it doesn’t make a 3-5 low against me. I use discretion here, but definitely, anything below a five day low gets me out of the trade. I want to keep whatever I can of the open capital left in the position.

For short premium plays, as long as my short options are out-of-the-money, I’ll keep holding the position in an attempt to let my resting profit target order get hit. But as soon as any short options go in-the-money, I pull the chord. Negative gamma can turn a bad situation into a significantly worse one in a blink of an eye. So I’m out.

If you’re holding April options, you have three days to get out. Keep your eye on ‘em!

Trade 'em Well,

Sean McLaughlin
Chief Options Strategist
All Star Charts, Technical Analysis Research

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