Trading Options at Expiration – Strategies and Models for Winning the Endgame : [PDF Download]

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“Equity and index options expire on the third Friday of each month. The final hours of each expiration cycle are characterized by unusual market forces and price distortions that, properly exploited, provide outstanding trading opportunities.

These distortions are caused by the breakdown of traditional option pricing calculations that depend on volatility and time decay to fairly represent risk. As a result, options are unavoidably mispriced during the final few days.

End-of-cycle price distortions represent a market inefficiency that cannot easily be exploited by large institutions for reasons related to liquidity and execution efficiency. The trading strategies outlined in this book scale to hundreds, but not thousands, of contracts.

Institutions normally trade thousands, tens of thousands, or even hundreds of thousands of contracts in structured positions that must be capitalized through a lengthy pricing process.

These dynamics are best suited to private investors trading online with accounts that range from $50,000 to no more than $10 million—an order of magnitude smaller than most institutional accounts.”

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