House keeping on Expiration Week

Today is Jan expiration.

During this week, it is busy time especially during the last 2 days.

There are a number of housing keeping tasks to keep in mind when you approach the end of the week. Volatility will start to ramp up by Wednesday and then crashed on Friday afternoon one hour before the close. Also, time decay accelerates and gamma goes chaos and tends towards 1 at expiration.

For those who love to trade Iron Condors and Butterfly, these are best time. Also, it is good time to trade OTM strangle or straddle especially when it coincides with earnings period now.

More aggressive and skilful traders will lookout for pinning for stocks like AAPL, RIMM, GS and GOOG betting that the stock has a tendency to expire at a specific price.

For me there are few things I do:

· Evaluate all bull puts and naked put to decide whether I like to keep the stock. If not, I will take profit if it is close to the money.

· If there are short puts with imminent assignment, I will normally add a short call instead of a long put. I will decide whether it is necessary to add a long put to convert to a collar on Monday if the trend continues to trend down.

· Evaluate all calendars. Any short options that are ITM should be rolled out. The delta goes greatly against you once it is ITM especially when you are trading a calendar.

· Need to decide to close any short term straddle or strangle trades before 1 pm.

· Look out for credit spreads for the following month. This is probably the best time if the set up conditions are correct. The volatility is high.

· Finally for covered calls, if you intend to keep the stock, roll out the short option if it is expiring on Friday whether it is ITM or OTM. If ITM, if you are happy with the profit, then just let it expires. If it is a stock you intend to keep for longer term because of the relatively high dividend, then roll out the short option. You may have to take some loss on the short options but you are making money on the stock. It is probably a good time to roll as you ride on the relatively expensive option.