It's Options Expiration Week!

by Wayne Ferbert on April 16th, 2012

It seems like forever since the last options expiration. It has been a little longer than usual. This was one of those 5-week windows between expiration. But this Friday finally brings options expiration for the April month. So, it is time to start planning for rolling your positions and maintaining your hedges.

Let’s remember our process:
1. Do you have any positions that you are thinking about closing – and therefore not rolling them?
- Remember that expiration provides a great  time to question your investment hypothesis on your positions – especially if you have any options expiring in the money this week.

2. Do you have any protection levels that are expiring that you need to roll?
- As a Buy & Hedge investor, you are regularly rolling expiring options that create downside protection for your portfolio.
- Hopefully you have some April expirations that create downside protection that were set over 4-6 months ago – meaning they are way out of the money now with the market rally.
- Use this chance to roll that protection to new higher levels.

3. Were you selling away your upside to help fund downside protection? For example, covered calls in a collar in the near month to generate income? Do you need to roll any of them for next month?
- More than likely, with a slightly down 4-week market, you haven’t actually given away any upside in any broad market ETFs if you sold away any of the upside.
- Take a look at this chart to see that the popular ETFs that we like to hedge with have all been down – about 2%.
- As you can see, everything is down about 2%. More than likely, your calls will expire worthless on Friday …
- … but, There is still a week to go. Think about when you want to roll forward. You could choose to do it this week. On Friday maybe and have a day with over-lapping calls you have sold. Or, you could always do what we most often do – let the weekend lapse and look on Monday and Tuesday next week for the best price.

Remember that options expiration week is important to plan around. Friday looms large – and you want to make sure you continue with the exact market risk you really want to convey in your portfolio: YOUR HEDGED PORTFOLIO!


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