Uncovered Options Trading System

Options Autotrading
143 signals were traded since 2016-20
only 6 red

Options fair value, open interest and expiration date


Options Fair Value

An option's fair value is simply a contract's value at the present moment. Depending on the market condition the fair value may fluctuate.

There are several parameters that affect a value and It is important to know them:

Options Open Interest

The open interest is simply the number of open contracts - either puts or calls that are still opened and not closed and have not been exercised and have not expired yet. You have to understand that each open transaction has a buyer and a seller and when open interest is calculated it uses only one side of the contracts. You have to understand that open interest is not a trading volume. When you are selling short options it add to he open interest as you creating new options contracts. If you selling options you previously bought, the contracts just changing the hands and the open interest remains unchanged - there are no new contracts. When options are exercised, the open interest becomes lower as it reduces the number of contracts that are open. And, after expiration date open interest becomes zero as all contract has expired.

For better understanding we set the table below to show how open interest is calculated. Lets say we have  hypothetical options market where we have 5 traders and we mark those traders as from A to E

# of eventTrading ActivityWhat HappensOpen Interest
at the beginningthere were nothingnothing at all0
1stA sells 5 options to BNew contracts are created5
2ndC buys 10 options from DNew contracts are created15
3rdB sell his 2 contracts he previously bought to ENo new contracts, the existing contracts just changing hands15
4thD buys 3 options from BD was options seller (see event #2), he bought back part of what he previously sold by closing these contracts12
5thC decided to exercise his right on 5 contractsWhen contracts are exercised the number of opened contracts reduces 7
6thExpiration day comes and 4 options that were in the money were exercised and the rest expired worthlessOption contracts are exercised and what was not exercised has expired0

Options Expiration

Every 3rd Friday of the month is an expiration day on an options exchange, meaning that a number of options series expire on this day.

All those call options whose strike prices are higher than the price of the underlying stock or index will be worthless at the end of the expiration date. Those options series, on the other hand, whose strike prices are lower, will have some intrinsic value and may be exercised. The opposite applies, in the case of put options.

There are American style and European style options. Options which can be exercised at any time up to the expiration date are the American style options. Options which can only be exercised on the date itself, are the European style Options.

The options expiration date is the most important factor in calculating options prices:

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DISCLAIMER: THIS INFORMATION IS INTENDED FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE ANY FINANCIAL ADVICE. RISK IS INVOLVED IN ALL STYLES OF MONEY MANAGEMENT. Uncovered options trading involves greater risk than stock trading. You absolutely must make your own decisions before acting on any information obtained from this Website.

The return results represented on the web site are based on the premium received for the selling options short and do not reflect margin. It is recommended to contact your broker about margin requirements on uncovered options trading before using any information on this web site. Use our "Trade Calculator" to recalculate our past performance in relation to the margin requirements, brokerage commissions and other trading related expenses. Past performance is not indicative of future results.

Risk Statement:

Naked options trading is very risky - many people lose money trading them. It is recommended contacting your broker or investment professional to find out about trading risk and margin requirements before getting involved into trading uncovered options.

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