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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 the Long Option Spread Strategies since that is what the Expiry Week website is all about.

Options Basics Tutorial

Bull Call Spread

Bear Put Spread


Option Evaluator

You can navigate to the Option Evaluator from the Expiry Week Home page by clicking on the link labeled "Option Evaluator".


Expiry Date

The Expiry Date on the Evaluator shows the date for which the calculations are valid. We refresh our data once a week on Friday after the market close, and evaluate options that are set to expire the following week.

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.

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.

Trader Sentiment
The Expiry Week Predictive Model classifies each stock as either positive or negative based on the inferred actions of professional option traders. A positive value suggests that the stock is more likely to rise than fall and a negative value suggests that the stock is more likely to fall than rise. See the Apply Model section below for an explanation of the underlying logic that drives our model.

Buy and Sell Strikes

For Call Spreads, the suggested Buy Strike is at or just below the current stock price and the suggested Sell Strike is at or just below the stock's projected Upper Target. For Put Spreads the suggested Buy Strike is at or just abive the current stock price and the suggested Sell Strike is at or just above the stock's projected Lower 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 might 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.

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.


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, 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.

Apply Model:
Expiry Week uses the premiums being paid for a Stock's underlying options to determine if option traders are favoring "Bullish" vs "Bearish" strategies. The model we use is proprietary so we won't share it here, but you can make use of it by becoming a subscriber to our premium service. When the "Apply Model" box is checked expiry week will apply an additional filter to the Option Screener such that the "Call Spread" strategy will return stocks only if the underlying option trader actions are deemed to be "Net Bullish". Conversely, if the "Put Spread" is selected only stocks where the underlying option trader actions are deemed to be "Net Bearish" will be returned.

Trade Of The Week

Our Trade for the upcoming week is published on Friday after the market close. It will always be in the direction of our Market Forecast; Call Spreads if the market is predicted to move Up and Put Spreads of the market is predicted to move down. Our Market Forecast simply uses the "SPY" ETF as a proxy for the over all market. If the "Trader Sentiment" on "SPY" is positive, then the Market Forecast will be Up and if the "Trader Sentiment" on "SPY" is negative, then the Market Forecast will be Down.

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. Note that Friday's closing spread cost might not be obtainable on Monday in the event of an opening price gap (up or down). Keep this in mind when viewing our Trade Of The Week Performance page.

You might 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.