Code Name: OpEx

Each month there is an event for option traders that adds a LOT more excitement, frustration, whipsaw action to trading options: Options Expiration. February 19, 2011 is the day for this month. I do a great deal of option trading, either as a straight option only trade, or as part of a combination or hedge trade so I am right in the middle of the mayhem. I typically spend a great deal of time in the prior weekend planning my option trade tasks so that I am prepared to deal with any remaining trades that I have on.

This month I have 7 put spreads sold that I expect to expire, thus allowing me to keep the premium collected when I sold them. I do have several Feb put trades that are in place for protection on long positions, so I will be rolling those to March. I have 2 Feb call positions left that I am currently rolling to March as well.
The remainder of my option trades are for March or future dated months so I do not need to address them at the moment.

I do employ several strategies with my option trades and here are a few:

• Selling put spreads as a bullish bet. The goal is primarily to keep the premium collected at expiration, but there are times where I am able to take off parts of the trade (buy back puts at a lower price for example) and then put the trade back on at a strategic moment.
• Buy call spreads when I want to make a heavier bet in a stock.
• Stock replacment. I often do this when I am long a stock that makes a large up move. I will sell the common and take some of the profit to buy calls.

The above is certainly not a complete list of all the reasons for trading options, but certainly are some of the top reasons why I choose to do so.

Friday OpEx is usually a very wild day as stocks try to pin to certain strikes, so strap in and hold on.