Expiration Friday is one day options sellers absolutely love.
There are gamblers out there buying up “lottery tickets”. What I mean by that is they’re putting their money into low odds bets…
In hopes of the stock moving to their favor so they can take a quick profit before the close.
If traders are able to figure out where these long-shot bets are, they could collect premium quicker than usual… and end the week on a high note.
I want to show you how to find these “sucker bets” on expiration Fridays, and use a risk-defined approach to take advantage of them…
As well as reveal to you why options sellers have an edge.
Why Options Sellers Should Be Locked And Loaded On Fridays
Every Friday, options are set to expire… they might expire in the money or worthless.
Of course, in this wacky market environment, traders are chasing action and making moves off emotions.
Here’ a trade that I saw pop up on my radar at 10:00 AM ET on Friday.
Traders bought the $1,300 puts in TSLA when the stock was trading at $1,410.71.
In other words, they were looking for TSLA to drop more than 100 points in just a matter of hours.
Could it happen?
But the odds of that event occurring was less than 7%.
That means whoever sold those options had more than a 93% chance of gaining.
The thing is, those options were out of the money puts… and that means the entire value was extrinsic, or time value.
When it comes to expiration Fridays, out of the money options lose value pretty fast due to time decay.
Not only was time working against those $1,300 puts.
Those options were going for about $2 a piece at 10:00 AM…
By 11:19 AM, they lost a lot of value and were going for $0.36.
So how could a trader have played this?
Well, if they were bullish on TSLA and didn’t think it would break below $1300 by the close on Friday…
They could’ve sold those $1,300 puts and simultaneously purchase the $1,250 puts.
This is known as a bull put spread, and with that setup… the risk is defined.
A trader would know how much they’re risking… and the best part is they would have a statistical edge.
Well, with the bull put spread, traders are able to gain in three different scenarios:
- If TSLA bounced and ran higher, the trader who sold that put spread could’ve gained.
- If TSLA stayed in range, they trader was still in a position to gain.
- If TSLA fell a little, but stayed above $1,300… they could still gain.
When you think about it, those $1,300 puts had more than a 93% chance of expiring worthless… and they needed the stock to have a massive move before 4:00 PM.
Who would place a bet like that?
I don’t know about you, but that seems like a pure gambler to me, especially since those options were set to expire today.
And I believe traders can utilize that information to generate trade ideas, ones that I believe can provide a statistical edge.
If you want to learn more about this strategy and how I’m able to stack the odds to my favor…
You’ll learn my number 1 edge in the market and how I take advantage of the “gamblers” in the market.