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It's Options Expiration Week!


Friday looms large -- make sure you line your options up with the exact market risk you really want in your portfolio

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 expirations. 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-and-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 four to six 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.
  • The popular ETFs that my firm likes to hedge with have all been down – about 2%. The S&P 500 (SPY) went from $140.30/share to $137.84 between the March 16 close and the April 16 open. Over the same period, the S&P MidCap 400 (MDY) dropped from $181.74 to $176,41, and the Russell 2000 Index (IWM) fell from $83.00 to $79.89. All three are 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 overlapping 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!

Editor's Note: For more from Wayne Ferbert, go to Buy & Hedge ETF Strategies.
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No positions in stocks mentioned.
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