Weekly Options – SPX PM
There’s a new weekly options trading vehicle in town based on the SPX called the SPXPM.
Traditionally the SPX options expired on Friday mornings along with options on other major indexes like the RUT. For us option income traders, who like to trade credit spreads, iron condors, butterflies, etc – this Friday morning settlement always caused potential problems and headaches as we never really knew where the underlying would ‘finish’ trading at.
For example if we were playing an option income trading strategy on an underlying like the SPY or a stock – we could literally take the trade right into expiration without necessarily having to take the trade off. If we were able to watch the market – and if we felt nimble enough to get out of the trade if we suddenly had to – we could simply watch the underlying tick away into the final moments of expiration and if were safely ‘out of the money’ we could simply let the options expire worthless without having to pay extra commissions to take the trade off.
Not so with the bigger indexes like the RUT and the SPX. These options expired on Friday morning – at the ‘opening’ price. The final ‘number’ where the underlying came in at based off of an aggregate of a total of all the stocks in that underlying – based at where they opened Friday morning.
This ‘opening price’ settlement makes it impossible to make any sort of hedge or adjustment based on where that opening ‘settlement’ price came in at – presenting a situation where if we decided to take a trade into expiration on any of these indexes – we were really pretty much gambling and hoping that some sort of bigger than an expected move – or gap – wouldn’t occur to suddenly take a trade that was ‘out of the money’ – ‘into the money’ – and into an option trading loss.
In fact, I know of many option traders who would take their SPX or RUT positions and hold them over Thursday expiration night – thinking that they were clearly ‘safe’ and in a winning trade – only to have a huge opening move – or gap – throw their trades into a major loss – without them being able to do anything about it.
Enter the new SPX PM options.
This new option trading product is the same size as the SPX, is electronically traded and expires on Friday ‘PM’ just like other ‘normal’ stocks.
And it comes in a weekly options version too.
This is a great addition – allowing us option income folks more ‘options’ in trading the SPX and playing it right into the close without having to exit early or be subjected to an ‘unknown’ type of settlement like the older SPX and RUT options present.
Now – they need to do the same thing with the RUT.
To learn more about a very SIMPLE way to trade options for income that can be used with these new SPX PM options (as well as the older traditional SPX, RUT, and ETFs like the SPY, IWM, etc) be sure to join our free option income trading newsletter by clicking here.
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