How to Handle the Friday March 16 Options Expiration
We have the good fortune to have several options positions left that expire on Friday, March 16 in five trading days and I just want to explain to the newbies how to best maximize their profits.
This involves the:
Currency Shares Euro Trust ETF (FXE) March 16 $120-$123 vertical bear put debit spread
The Facebook (FB) March 16 $155-$165 vertical bull call debit spread
The Facebook (FB) March 16 $190-$195 vertical bear put debit spread
Provided that some we don't have a monster "RISK OFF" move in the market over the next few days (war with North Korea?), which could cause bonds to rally big time, these position should all expire at their maximum profit point below.
Your profit on each position should amount to the following:
(FXE) put spread - $2,000 or 20.00% in 18 trading days
(FB) call spread - $1,800 or 17.64% in 33 trading days
(FB) put spread - $1,266 or 12.35% in 22 trading days
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.
You don't have to do anything.
Your broker (are they still called that?) will automatically use your long positions to cover your short positions, cancelling out the total holdings.
The profit will be credited to your account on Monday morning March 19, and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don't see the cash show up in your account on Monday, get on the blower immediately.
Although the expiration process is now supposed to be fully automated, occasionally mistakes do occur. Better to sort out any confusion before losses ensue.
I don't usually run positions into expiration like this, preferring to take profits two weeks ahead of time, as the risk reward is no longer that favorable.
But we have an excess of cash right now, and I don't see any other great entry points for the moment.
Better to keep the cash working and duck the double commissions. This time being a pig paid off handsomely.
If you want to wimp out and close the position before the expiration, it may be expensive to do so.
Keep in mind that the liquidity in the options market disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday. So if you plan to exit, do so well into the final expiration.
This is known in the trade as the "expiration risk."
One way or the other, I'm sure you'll do OK, as long as I am looking over your shoulder, as I will be.
I am going to hang back and wait for good entry points before jumping back in. It's all about getting that "Buy low, sell high" thing going.
I'm looking to cherry pick my new positions going into yearend.
Take your winnings and go out and buy yourself a well-earned dinner. Or use it to pay your upcoming 2017 income tax bill.
It's probably going to be a big one, given how much money you made trading this year.
Well done, and on to the next trade.
