We have several options positions that expire on Friday, and I just want to explain to the newbies how to best maximize their profits.
My bets that (GS) and the (IWM) would rise, and that the (FXE) and (FXY) would fall during March and April proved dead on accurate.
Provided that some 9/11 type even doesn?t occur this week, all positions should expire at their maximum profit point on April 17. In that case, your profits on these positions will amount to 16.4% for the (FXE), 14.2% for (GS), and 16.4% for the (IWM).
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 you long put position to cover the short put position, cancelling out the total holding. Ditto for the call spreads. The profit will be credited to your account on Monday morning, and he margin freed up.
If you don?t see the cash show up in you account on the following Monday, April 20, 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.
There are already interesting trades setting up in bonds (TLT), the (SPY), the Russell 2000 (IWM), NASDAQ (QQQ), solar stocks (SCTY), oil (USO), and gold (GLD).
The currencies seem to have gone dead for the time being, so I?ll stay away.
Well done, and on to the next trade.
