Trading Monthly Options Expiration

Choppy Indexes

As of this writing, the Nasdaq is up about 1% today. But it hasn’t made much progress over the last week and a half, as it’s primarily been stuck in a tight range. The Nasdaq has been trading between 14,250-14,700 and stuck within a 500-point zone. But, this is also after it made a considerable momentum move after most major cap technology stocks reported earnings in mid to late April. Since the low for the month on April 25th, 2023, the Nasdaq has exploded over 2,000 points!

Check out my screenshot below:

Nasdaq Futures – Daily Chart – 6.8.23

 

The Daily Squeeze

The daily squeeze is one of my favorite signals for identifying momentum in the market before it takes off. And this Nasdaq squeeze and move higher was fierce! But, it never lasts forever.

After every large move, specifically after a major daily squeeze fires, it’s completely normal for the market to digest that move by chopping around! That is even more common around monthly options expiration, specifically a witching expiration.

While many options traders get involved because they want to take advantage of those big moves (as do I!), there is opportunity involved in choppy markets as well. This is especially the case right now because the monthly options expiration is coming up next week.

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Monthly Options Expiration

While each monthly expiration provides opportunities for traders in the options market, this is especially the case during witching expirations. Witching expirations occur when index futures, index options, and stock options expire simultaneously. This generally results in a lot of back-and-forth trade and premium decaying opportunities.

In the options market, we typically strive to buy premium before a big momentum move (like what just occurred in the Nasdaq), and then shift to premium selling opportunities when the market trades sideways.

Premium selling opportunities occur because options are comprised of intrinsic and extrinsic value, depending on their in-the-money, at-the-money, or out-of-the-money nature combined with the time left until expiration. As an options contract gets closer to expiration, the extrinsic value decays over time, making the option worth less money. This is great if you can identify which options may go down in value so that you can sell them!

This is a main focus that we use in our Options Gold trading room during monthly expiration, and especially during witching expirations. Check out my premium decay graphic below:

 

Want to learn more about how to trade monthly expiration? Join us in the Simpler Trading Options Gold room, our premium chatroom where you can find live trading analysis, trades and more all throughout market hours. Click here to learn more!

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