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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
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.
We provide analysis for the following option strategies.
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 before expiry. 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.
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, 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:
Our Trade for the upcoming week is published on Friday afternoon at around 1pm EST (Thursday if Friday is a market holiday).
Returns are calculated by comparing the cost of the optimal Option Spread at Friday's close to the intrinsic value of the same Option Spread at the close of trading on Friday of the following week. We use 95% of the Spread's intrinsic value at Expiry to account for bid and ask related costs associated with closing out the position.
Our trade selection process is based on personal insight coupled with a set of proprietary predictive models. The models that we employ are evaluated based on stock price movements from Friday's close through to the following Friday's close. It is therefore best to take a position near the close of trading on Friday and hold it through until the afternoon of the following Friday. You might also consider placing a Good-Until-Cancelled sell order at 95% of the Spread's maximum possible value shortly after your buy order is filled. We have found that this level is often achieved 1 or 2 days before the options expire. Since this is likely the most you will make on the trade even if you hold to expiry, it makes little sense to keep your position open beyond this point.
In the interest of disclosure; Expiry Week LLC staff may from time to time buy the Trade Of The Week for their own trading accounts. In the event that we choose to take a position, it will be after 3:30pm EST on Friday; well after the trade has been disclosed to our subscribers.