How to Handle the Thursday, April 17 Options Expiration

Followers of the Mad Hedge Fund Trader alert service have the good fortune to own FIVE in-the-money options positions that expire on Thursday, April 17, and I just want to explain to the newbies how to best maximize their profits.

These involve the:

Risk On

(COST) 4/$840-$850 call spread 10.00%

(TSLA) 4/$160/$170 put spread 10.00%

(NFLX) 4/$800-$810 call spread 10.00%

(NVDA) 4/$70-$75 call spread 10.00%

Risk Off

(MSTR) 4/$340-$350 put spread -10.00%

Provided that we don’t have a monster move in the market in three trading days, these positions should expire at their maximum profit points.

So far, so good.

I’ll take the example of the (NVDA) 4/$70-$75 call spread.

Your profit can be calculated as follows:

Profit: $5.00 expiration value - $4.50 cost = $0.50 net profit

(25 contracts X 100 contracts per option X $0.50 profit per option)

= $1,250 or 11.11% in 9 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 position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning, April 21, 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 and find it.

Although the expiration process is now supposed to be fully automated, occasionally, machines do make mistakes. Better to sort out any confusion before losses ensue.

If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload those pennies below their maximum expiration value.

Keep in mind that the liquidity in the options market understandably disappears and the spreads substantially widen when a security has only hours or minutes until expiration on Thursday. So, if you plan to exit, do so well before the final expiration at the Thursday market close.

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 always. Think of me as your trading guardian angel.

I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.

I’m looking to cherry-pick my new positions going into the next quarter's end.

Take your winnings and go out and buy yourself a well-earned dinner.

Well done, and on to the next trade.

You Can’t Do Enough Research

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