Expiry day option selling is a popular trading strategy used by options traders to capitalize on the time decay of options. The goal is to sell options contracts that expire on the same day to make a profit.
While this strategy can be lucrative, it also carries significant risks, and traders need to be aware of the potential downsides before engaging in expiry day option selling. This article will discuss the pros and cons of this strategy and help traders how to implement the same.
Pros and Cons of Expiry Day Options Selling
Expiry day options trading can be a profitable strategy for experienced traders, but it also carries certain risks. Below are some of the pros and cons of trading options on expiry day:
- Scalping and intraday option selling can be attractive for traders who are looking for value over tenure.
- Expiry day trading may be profitable for risk-tolerant traders who understand market dynamics.
- Traders might make quick profits on expiry days due to strong volatility and rapid price swings.
- Expiry day trading is risky, especially for newbie traders.
- Expiry day trading is fast-paced, making it hard to respond to market movements, which can lead to big losses.
- Because options contracts expire on a certain date, traders must be especially careful in monitoring their holdings and closing them out quickly to avoid additional charges.
4 Most Effective Expiry Day Options Selling Strategies
There are many expiry day options strategies, but some of the most popular are given below:
1. Option Buying at the Expiry Date
This popular strategy involves purchasing options with multiple strike prices, typically before the expiration date.
By doing so, traders increase the likelihood of the price moving in their favor, enabling them to exercise the option before it expires and maximize their profit potential.
2. Option Selling at the Expiry Date
For traders looking to profit from the movements of the underlying asset, options selling is a favored strategy. Option selling at the expiry date is an advanced technique wherein traders sell multiple options near strike prices, hoping they will expire worthless.
The goal is to collect as much premium as possible from the options sold. To successfully execute this strategy, traders must have a strong grasp of option pricing and risk management, which can be acquired through an option selling course.
3. Straddle Selling Strategy
The straddle selling strategy involves selling both a call option and a put option at the same strike price, with the aim of profiting from the decay of both options as the expiry date approaches.
For example, a trader selling a straddle on a stock trading at ₹500 with a strike price of ₹500 would simultaneously sell a ₹500 call option and a ₹500 put option.
If the stock remains at ₹500 until expiry, both options will expire worthless, and the trader keeps the premium collected from selling the options. If the stock moves significantly in either direction, the trader may need to adjust their position to limit potential losses.
4. The Iron Condor strategy
The Iron Condor strategy involves selling both a call option and a put option at different strike prices while also buying a call option and a put option at even further strike prices to limit the potential losses.
For example, a trader could sell a call option at a strike price of ₹500 and a put option at a strike price of ₹400 while buying a call option at a strike price of ₹550 and a put option at a strike price of ₹350.
This creates a “condor” shape on the options chain, and the aim is to profit from the decay of the options sold while limiting potential losses by setting up a narrow range for the underlying asset to trade within.
Expiry day options selling can be a profitable trading strategy for experienced traders. However, it carries significant risks and requires a deep understanding of option pricing and risk management. Traders looking to engage in this strategy should consider taking options selling course to develop their skills and knowledge.
Upsurge.club’s option trading courses will help you master the complex world of options trading. Learn the strategies used by professional traders to profit from options, and discover the secrets of successful options selling.
With the right education and risk management practices, traders can implement effective expiry day options selling strategies and potentially profit from the time decay of options.