As the equity markets take a brief pause over the next couple weeks for the holidays there are some great option strategies to take advantage of during this time off.
One of the better strategies I use is selling premium for puts and calls. This action allows me to collect a premium and let the time decay with no market activity work in my favor. Like Thanksgiving, we have a half day of trading on Christmas Eve, Christmas is closed and then the following week is New Years. The January option cycle, normally 20 days will shrink to 17 1/2. Option premium for sellers will be flattened, and when 80% of all options expire worthless, why not be on that side?
As a buyer of options we fight the clock, time is the enemy. However as a seller of premium time is our friend, as it erodes option premiums. If we collect the premium before a weekend or a major holiday our odds increase of keeping the premium before expiration. Options are a zero sum game (for the most part) if the seller is on the winning end; the buyer is clearly on the other.
Market volatility is low here, the VIX is closing the week under 14%. As for options, I like selling premium into a holiday-shortened week, both put and call spreads, which allow me to participate but with time rather than direction. As a put seller, I want to see the stock stay where it is or move up, as a call seller I want to see a stock move down or stay where it is.
The beauty of equity options (American style) is that I can close these out early or let them run to expiration – it is my choice. I will often let the decay work in my favor until about 80% of the premium has eroded, then buy back the option or spread. Think about trying this over the coming holiday weeks.
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Bob Lang has been managing private options trading accounts for clients since 2004 and providing subscribers with guidance on trading options for income at Explosive Options since 2011.
