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Resources

Before embarking on your adventurous journey into the wondrous world of Options trading, it would probably be a good idea to familiarize yourself with what these trading instruments actually are. The following resources will help you do just that. You will want to pay particularly close attention to "Long Option Spread" Strategies since that is what the Expiry Week website is all about.

Options Basics Tutorial

Options Playbook


Option Evaluator

You can navigate to the Option Evaluator from the Expiry Week Home page by clicking on the link labeled "Option Evaluator".
The Entry Date on the Evaluator shows the trading day for which the calculations are valid. You can use this date to determine when Expiry Week has finished performing its nightly updates.


Strategy

We provide analysis for the following option strategies.

Buying a Call Spread involves simultaneously buying a Call option at a particular strike price and writing a Call option that is out-of-the-money relative to the strike price bought.
Buying a Put Spread involves simultaneously buying a Put option at a particular strike price and writing a Put option that is out-of-the-money relative to the strike price bought.

Expiry Date

The date on which an option ceases to exist.

Stock Target

If the selected strategy is "Buy Call Spread", an upper target price for the stock will be displayed. If the selected strategy is "Buy Put Spread", a lower target price for the stock will be displayed. The upper and lower stock targets are derived from the average amount the stock can be expected to move based on the number of trading days remaining between the displayed Entry Date and Expiry Date. We determine the average amount a stock can be expected to move using the implied volatility of the underlying options.

Target Return

We calculate returns based on the assumption the stock will close exactly at our projected target on expiry day. Since there are bid and ask related costs associated with closing each leg of an option position, you should expect to receive a bit less than the actual intrinsic value of your position if you sell it on the open market on expiry day. To adjust for this reality Expiry Week uses 95% of an Option Spread's maximum expected value when calculating Target Return.

Buy and Sell Strikes

The suggested Buy Strike for both call and Put Spreads will be the Strike Price that is closest to the Current Stock Price. The suggested Sell Strike for a Put Spread will be the Strike Price that is closest to the Stock's Lower Target and the the suggested Sell Strike for a Call Spread will be the Strike Price that is closest to the Stock's Upper Target. Visit our Trade Options With A Mathematical Edge page to find out why these are the optimal strike prices to choose. The suggested strike prices will not always exist for a given symbol and expiry date, but you can use the above logic to select the best ones from those that are available.

Spread Cost

This represents the net cost associated with the Option Strategy you are executing. You need to supply the price of the option position manually and then press the Evaluate button to get the value of Target Return.


Option Screener

The Option Evaluator displays a link in the upper right corner labeled "Option Screener". Clicking this link will display a list of the 25 best available trades for the currently selected Product, Model, Strategy and Expiry Date. Trade candidates are displayed sorted by maximum return potential so that you can explore each candidate working down from the top of the list until you find one that you feel comfortable trading. Clicking on a symbol in the Option Screener will drop that symbol into the Evaluator along with the previous days closing Stock Price. Supply the current stock price and press "Submit" to get an updated target price for the stock along with the optimal Buy and Sell Strikes to use when buying a Spread.

Product:

Applies a Product filter to the results that get returned.

Model:

If "None" is selected the Option Screener will return the top 25 Spread Candidates based on return potential. In order for a spread to be a candidate, it needs to provide a return of at least 100% if the underlying stock reaches its target by Expiry Date. If a model is selected, we apply an additional filter based on the model's prediction on the direction of a particular stock. If the currently selected Strategy is "Buy Call Spread", then only stocks that have at least a 70% chance of moving up in price will be selected. If the currently selected Strategy is "Buy Put Spread", then only stocks that have at least a 60% chance of moving down in price will be selected. We use a less stringent threshold to predict a down move because stocks as a whole tend to move up over time. The Seasonality Model is the only model currently implemented; however, we are experimenting with various Machine Learning Algorithms in an attempt to develop a more sophisticated and rigorous model.

Seasonality
The Seasonality Model simply takes tomorrow's date (relative to our nightly update) and the currently selected expiry date, and calculates the percentage return during that period, over the past 10 years. To calculated the chance of a stock moving up in price we simply divide the number of years in which it moved Up, by the total number of years for which we have available data. We have elected to use only 10 years of history to reflect the reality that a company's business can undergo significant changes over time. Seasonality Model Ratings are assigned only for options expiring in the next 6 months. Once you start approaching a year the concept of seasonality loses its meaning. A six month time horizon can be useful if you wish to apply the strategy known as "Sell in May and Go Away".