Traders who engage in delta-neutral premium selling strategies are unconsciously playing out the drama of life on their trading screens.
We’re simply managing our expiration to happen on our terms.
We all want to live long, healthy lives. And we want our lives to end on our terms. This is universal.
How is selling options premium any different?
As we approach options expiration for our short options, we want the premiums of these options to sail off into the sunset, expiring quietly, elegantly worthless. We don’t want any drama. We just want to enjoy the view knowing they’ve given us all the premium they can.
At the end of an options contract’s life, just like our own human lives, it’s already given all it can give in terms of premium. We want it to end completely spent. The last thing we want is to expire with the feeling we have more to give.
And therefore, as an option approaches expiration, if there is not enough premium left to offset any directional risk that is now becoming a problem as the market moves toward our strikes, we’re faced with a decision — do we hold this risk and expose ourselves to the possibility of a fiery death? Or do we roll the position out to a later expiration and try again? In most cases, the prudent move is to roll out for more time.
We humans do the same thing! If our life isn’t the way we want it… we fight with everything we’ve got to buy ourselves more time to get it right. To position ourselves to win later. More time to love. More time to experience life. More time to make that nut. More time to see the world and enjoy nature. More to time to expire on our terms.
In the end, isn’t that what it’s really all about?