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How To Profit From Expired Out-Of-The-Money Options

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How To Profit From Expired Out-Of-The-Money Options
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For Tesla Inc (NASDAQ: TSLA) option traders, last week’s market close provided a lesson in why options traders shouldn’t necessarily call it a day when the options market closes at 4 p.m. on Friday.

On Monday morning’s PreMarket Prep host Dennis Dick explained why Friday’s after-hours session provide certain options traders the ability to profit off of their contracts, even though they closed "out of the money."

Friday And Tesla

Here’s a breakdown of what happened: Tesla stock closed Friday’s session at $313.22, but it traded higher in the after-hours session. In fact, Dick pointed out that Tesla was actively trading above $315 in the after-hours session, opening the door for a rare, but profitable, trading opportunity for call option holders who were paying close attention.

For traders who held $315 Tesla calls that expired seemingly worthless on Friday, some brokers allowed those options to be exercised during the after-hours session. Hypothetically, a trader who held a single $315 call option could have shorted 100 shares of Tesla at $315.30 in Friday’s after-hours session, exercised their option and immediately pocketed the $0.30 difference for an overall profit of $30.

Dick said this strategy would have only worked for brokers who allow after-hours option exercising, but many of them do.

“Options expire on Friday, but they do not expire at 4,” Dick said. “There’s a lot of brokers, and this depends on your broker, [who] accept your option exercise after hours.”

Related Link: Not An Options Expert? You Can Still Use Options Market For Stock Trading Ideas

Dick said his personal broker, Interactive Brokers, exercises options up to 4:30 p.m. on Fridays, leaving a 30-minute window for these types of trades.

“Remember, you can exercise any option, even if it’s out of the money, you just have to call your broker and say look, I want to exercise that,” Dick said.

“It’s a good question, if you trade a lot of options, to ask what time can I exercise until,” he concluded.

For any $315 Tesla call holders who recognized this opportunity last week, there’s no better way to start off the weekend on a positive note than by turning a profit on some options that seeming had expired worthless.

Listen to Monday's full PreMarket Prep show below.

PreMarket Prep is a daily morning show about short term trading ideas and technical setups. It airs live from 8–9 a.m. ET here, and the podcast is here.

Latest Ratings for TSLA

DateFirmActionFromTo
Apr 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight
Apr 2018Vertical GroupInitiates Coverage OnSell
Apr 2018JefferiesUpgradesUnderperformHold

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

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