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Jeff Augen’s Options Trading Strategies (Collection) by Jeff Augen

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8. Trading the Expiration Cycle

In the preceding chapter, we explored trading opportunities that arise from earnings-related price distortions. Our analysis focused on implied volatility swings—the run-up that precedes most earnings announcements, and the collapse that follows. The dynamics are relatively complex because they depend on historical price change behavior, prevailing market conditions, and the stock's recent behavior.

This chapter focuses on a different set of price distortions that are rooted in the options expiration cycle. Most of these effects are a direct result of the interplay between the dynamics of trading and the mathematics of option pricing. For example, the amount of time that the market is closed each evening becomes ...

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