Options Trading: A Holiday Poem
In your excitement at spotting brightly-colored wrapped presents and anticipation of Santa’s mysterious appearance (some term it a midnight break-in), please do not forget to keep perspective on the season and the risks involved in trading options …
Yule is here, excitement higher
Options, though, will still expire.
Underlying prices change
As the strike exceeds the range.
Ring in the holiday but recall
Extrinsic value changes all,
Options come in pretty bows
Not exclusively so at close.
Mind positions, don’t forget
Yield in not for certain, yet;
Money value changes fast,
In the money at the last.
Not so short at expiration,
Deal your risk anticipation:
Volatile the prices be
Implied by volatility;
Option risks have little reason
Like the weather, rules the season.
If you must these risks adhere,
Now you know, less risk next year.
Michael C. Thomsett is an investing and options author and has also written for FT Press’ Agile Investor series, which can be viewed on FTPress.com. Thomsett’s latest FT Press book is Trading with Candlesticks.