Expiration End Game - Investing Shortcuts

Expiration End Game

Warren Buffet’s famous strategy is to be right in the long term…and to have the staying power to be in that position.

That thinking is that with an infinite amount of time and money, something that is obviously impossible hard to accumulate, you can just wait to be right.

Stocks don’t expire, except in the case of very infrequent bankruptcy, though often people’s patience with them does. The only clock that is ticking is in the emotional mind of investors that want results yesterday.

Other financial instruments like futures and options on stock or futures are for a limited duration.

Futures contracts do not expire per say but do come to a trading conclusion when they can be traded.

Each futures contract has a month and a specific date assigned when it will no longer trade. It’s time ends and another trading month contract takes over to perpetually roll into the future…

As that final day approaches volume decreases as many positions are moved into the next months.

Often times the fewer participants at the end can make for volatile trade as the futures price converges with the cash market.

Lesson to be learned, is to close out a futures contract while volume is still significant with plenty of buyers and sellers.

Options technically expire in the fact that on a specific day they are done and are settled. That could be in cash or assigned the underlying.

The more time an option has the larger window of opportunity to profit.

For long option holders that tick-tick until expiration is time value decaying and decreasing the value of the position. The last 30 days and especially inside of 21 days the time decay accelerates as there is less of chance price objectives will be achieved.

A good beginner rule is to be out of the options the month they expire to avoid having the ice cube melt in your hands. Sell or roll out to another month. 

Ex., exit or roll out a long October position before the end of September for example to eliminate the emphasis on hope that something happens in that short period of times.

Hope is not a trading strategy…have enough time to be right.

Alan Knuckman

Author Alan Knuckman

Alan Knuckman is the Founder and Chief Market Strategist for www.BullsEyeOption.com a subscription trading service for his inner circle members. He has over 25 years of market experience that began in the pits of the Chicago Board of Trade as a runner and progressed to a Treasury Bond speculator. Each trading day Alan is the video host of the Morning Market Stir from the CME Group and the Pre Market Pulse on CBOEtv. He is also a frequent financial commentator appearing on television regularly with CNBC, CNN, Bloomberg, and Fox Business Network.

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