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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.

Model Rating

A stock's Model Rating is a prediction that a stock will move up or down in price between the Entry Date and the currently selected Expiry Date. We use a mathematical definition of directional movement based on the following rules.

Buy and Sell Strikes

The Buy Strike is the option strike price at which you should position the long side of your trade; this will always be the strike price that is closest to the current stock price. The Sell Strike is the option strike price at which you should position the short side of your trade; this will always be the strike price that is closest to our projected Stock Target (Lower Target for a Put Spread and Upper target for a Call Spread). Visit our Trade Options With A Mathematical Edge page to find out why these are the optimal strike prices to choose. You can change the Buy Strike and Sell Strike on the evaluator when evaluating the potential return on a particular option position.
If you wish to be more aggressive you can push the buy strike closer to the projected target. This will increase you potential return but also increase the amount the stock needs to move in order for you to break even. A good rule of thumb is to only take a position if the target return is at least 100% so that the potential risk on each and every trade is offset by an equal or greater potential reward.

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 stock's predicted to move up in price will be selected. If the currently selected Strategy is "Buy Put Spread", then only stock's predicted to move down in price will be selected. As already mentioned under the above sub heading "Model Rating:", we use a mathematical definition of directional movement based on the following rules. 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 the calendar dates of the Entry Date and currently selected Expiry Date, and calculates the median percentage return during that period, over the past 5 years. A price movement equal to the median precentage return is applied to the current stock price to determine if the resulting price is sufficient to generate either a Positive or Negative Rating. We have elected to use only 5 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".