Selling options on options expiration day is one of the highest probability options strategies there is. Options decrease in value daily, that is great!
Options are time depleting assets and decrease in value each day. A melting ice cube.
So, selling options on the day of expiration is as close to a sure thing in options trading that you will learn in this Master Trader Chart of the Week.
Let me explain
Options sellers receive money for the obligation to buy or sell the underlying within a specified time.
As options sellers, we take the other side of the option buyer’s bet based on our interpretation of Master Trader chart patterns.
Our options income strategies (credit spreads are one) are designed to take the buyers’ money – literally – and get “Paid” by determining the price levels that will not be violated until Expiration!
We do this with the use of simple chart analysis, and so can you.
This is done without the use of indicators, trendlines, Fibonacci retracements or other indicators, which makes it so much easier.
Selling options on the day of expiration (zero days to expiration – (0 DTE) are one of our favorite strategies since we are merely calling the high (if selling calls/spreads) or low (if selling puts/spreads) for the day! One Day!
Check out this one-day trade that we gave our Weekly Options Trader subscribers last Friday that was sent to them in this Text Message:
The trade was discussed in the Green Trading Room during our pre-market review as a short call spread (0 DTE) candidate:
This is the actual alert that was sent to our subscribers:
9:39 – TSLA – Shorted Dec (12/20) $417.5/427.5 call spread for $.78/share. Gap and Crap from Climactic Sell Setup daily. Stop $414.22.
We always watch the action at the open to make sure it sets up with our bias; otherwise, we either pass on the trade idea or look for an alternate entry.
TSLA acted weak at the open so it was a top priority to sell a bear call credit spread.
Here's the 5-Min. chart showing how we entered and managed the trade to quick profits.
The trade was closed the same day for an average gain of $.66/share as TSLA continued to fall.
If you sold a 10-lot, that would be a $660 gain in less than 90 minutes by determining a short-term high!
Bear in mind that with TSLA around $409.50 when we recommended the trade, shorting the out-of-the-money $417.5 strike call gave us a “cushion” of over $8.00/share to be WRONG on the direction.
In other words, as long as TSLA closed below $417.50 at expiration, you keep the premium as pure profit!
We nevertheless covered in two profit targets to book quick profits without having to monitor it for the rest of the day; however, it would have expired for full profits for those keeping the original stop level.
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Some trade guidelines are below.
Selling Expiring Options on Earnings, Gaps, News, and SPY
We particularly love selling options — with the charts as always — when volatility is spiked because of news, earnings, selloffs, or other markets/stock fear.
This is because when volatility rises, option premiums rise. Whether from a bearish selloff or a bullish climactic run higher, we get paid much more for the options that we sell.
The SPDR S&P 500 ETF (SPY) has multiple expirations each week, giving us more profit potential to use this strategy throughout the week! One of our favorite patterns is when we get a bullish reversal on SPY after a multiple-day selloff to support because premiums have been rising on the selloff.
Because of the ease of the strategy and statistical “edge” that exists in selling options around compelling chart patterns, these trades are available in all market environments – trending, choppy, or even a volatile mess.
Checklist for Selling Options/Spreads on Expiration Day
Here is what we do each option expiration day in the Master Trader Green Trading Room to look for these types of compelling setups. It is typically on Friday for most options, but also have different days depending on the stock or ETF, plus multiple days each week on SPY.
- Scan your own Universe + Gaps/News/Earnings/High Implied Volatility/Index ETFs.
- If you get a compelling bullish setup, short OTM put options/spreads, stop under support.
- If you get a compelling bearish setup, short OTM call options/spreads, stop above resistance.
- Follow your Trading Plan for profit targets and trade management.
- Close into Expiration if you want to avoid any assignment risk (which still could happen even if the stock expires OTM if the option holder gives the broker a timely exercise notice for whatever reason, such as favorable post-market news).
- Be aware of extended trading hours beyond 4 pm ET where certain stocks and options are still trading.
For those swing and day traders who use technical analysis to trade, selling options and spreads on expiration day using the Master Trader Technical Strategies (MTS) can generate consistent income.
In fact, some traders specialize in this strategy in the Green Trading Room and only trade on the expiration day.
When you trade stock, you must be right on the direction to profit. In selling OTM options around compelling short-term turning points, you profit from the rapid decay of the option’s value into expiration in just a few hours – and the stock can still go against you somewhat to make a full profit!