Secret 24AVOID AN OPTION’S LAST MONTH
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As a general rule, I avoid holding options in their last month
before expiration. They depreciate at the fastest rate during that
last month. In fact, in some cases the option premiums absolutely
collapse.
One reason such depreciation may occur is because option
investors sell (write) options the last month before expiration. In
fact, I write options a day or two before the last month begins
(expiration of the previous month). Nevertheless, sometimes I
buy options with one month or less before expiration if they are
extremely cheap and undervalued and if the underlying stock or
futures price is close to the strike price.
This strategy gives you a secret advantage that we will cover
in a future chapter; no further explanation of this secret is
needed now. Unless there is a little premium to salvage, just get
out of option positions before the last month.
As a general rule, I avoid holding options in their last month
before expiration. They depreciate at the fastest rate during that
last month. In fact, in some cases the option premiums absolutely
collapse.
One reason such depreciation may occur is because option
investors sell (write) options the last month before expiration. In
fact, I write options a day or two before the last month begins
(expiration of the previous month). Nevertheless, sometimes I
buy options with one month or less before expiration if they are
extremely cheap and undervalued and if the underlying stock or
futures price is close to the strike price.
This strategy gives you a secret advantage that we will cover
in a future chapter; no further explanation of this secret is
needed now. Unless there is a little premium to salvage, just get
out of option positions before the last month.