How to Handle the Friday October 20 Options Expiration

We have the good fortune to have a couple of options positions left that expire on Friday, October 20 and I just want to explain to the newbies how to best maximize their profits.

These include:

The US Treasury Bond Fund (TLT) October, 2017 $127-$129 vertical bear put spread

and if you still have it,

The Apple (AAPL) October 20, 2017 $140-$145 vertical bull call spread

My bets that Apple would rise and that interest rates would fall proved dead on accurate.

Apple delivered nicely, bouncing hard off the $149 bottom that I predicted. Another bout of FANG fever helped.

This position earned you a nice 12-day of a respectable 11.16%.

We are fairly close to the upper $127 strike in the (TLT) spread, so we may have to do some finessing going into expiration.

Provided that we don’t have a monster “RISK OFF” move in the market over the next few days (war with North Korea?), which cause bonds to rally big time, the (TLT) position should expire at its maximum profit point below $127.

In that case, your profits on this position will amount to 12.35% in 16 trading days.

Many of you have already emailed me asking what to do with these winning positions.

The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.

You don’t have to do anything.

Your broker (are they still called that?) will automatically use your long $129 put position to cover your short $127 put position in the October (TLT), cancelling out the total holding.

The profit will be credited to your account on Monday morning October 23, and the margin freed up.

Some firms charge you a modest $10 or $15 fee to each leg for performing this service.

If you don’t see the cash show up in your account on Monday, get on the blower immediately.

Although the expiration process is now supposed to be fully automated, occasionally mistakes do occur. Better to sort out any confusion before losses ensue.

I don’t usually run positions into expiration like this, preferring to take profits two weeks ahead of time, as the risk reward is no longer that favorable.

But we have a ton of cash right now, and I don’t see any other great entry points for the moment.

Better to keep the cash working and duck the double commissions. This time being a pig paid off handsomely.

If you want to wimp out and close the position before the expiration, it may be expensive to do so.

Keep in mind that the liquidity in the options market disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration.

This is known in the trade as the “expiration risk.”

One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be.

This expiration will leave me with a very rare 95% cash position.

I am going to hang back and wait for good entry points before jumping back in. It’s all about getting that “Buy low, sell high” thing going.

I’m looking to cherry pick my new positions.

Take your winnings and go out and buy yourself a well-earned dinner. Or use it to pay your upcoming 2017 income tax bill.

It’s probably going to be a big one, given how much money you made trading this year.

Well done, and on to the next trade.


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