Timing Options Trades

http://www.options-trading-education.com/14283/timing-options-trades/ Timing Options Trades Timing options trades is to a degree a contradiction in terms. After all one buys options in order to have the opportunity to buy or sell an underlying equity at the time of one's own choosing. However, an options series has a starting date and it has an expiration date. If you expect to see a stock rise in price you will buy a call on the stock and if you expect the stock to fall you will buy a put. However, timing options trades can be important if you believe that the expected rise or fall in stock price will not happen for several months or a year. No matter what basic options strategies you use they will be of little use if the expected price action takes place after expiration. If you expect a longer term shift in stock price you might consider LEAPS options which have a longer duration. Picking an Options Series According to the CBOE, "All options of a given type (calls or puts) with the same strike price and expiration date are classified as an option series. For example, all XYZ June 110 calls would be an individual series, while all XYZ June 110 puts would be another series." Picking the right series is essential when timing options trades. Of course you will want to pick a series for which you believe that you can correctly anticipate a profitable price change. But you also need to pick a series that is not going to expire before your anticipated changes occur. If you are looking at long term changes think of LEAPS. Timing Options Trades and LEAPS LEAPS is an acronym for Long Term Equity AnticiPation Security. These options have a longer term until expiration than other options. LEAPS come in calls and puts for about 2500 equities and 20 indexes. LEAPS were created with the issue of timing options trades in mind. Standard options series commonly have cycles of three, six, and nine months. A LEAPS series will typically have a cycle of up to two years. Standard options expire on the third Saturday of the month. They come in January, February, or March cycles. That is, a January cycle expires in January, April, July, or October, February in February, May, August, or November, and March in March, June, September, or December. All LEAPS options expire in January. Whereas a LEAPS options gives you another year or so until expiration on equities it limits you to January expiration. This can be a problem in timing options trades. A common use of LEAPS options is not in market speculation but in hedging risk. For example an investor will buy shares of an exchange traded fund in a volatile market. He then buys puts on the index via a LEAPS option. This gives him upside prospects as the index rises and downside protection if it falls. http://youtu.be/AM6RdoR_lRc

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