For a normal third-Friday expiration, we have maintained that it doesn't make any real difference whether you buy back expiring out-of-the-money options on Friday (if they cost $.05 or less, there is no commission at thinkorswim) and also sell the next-month-out options on that day, or whether you let them expire worthless and wait until the following Monday to sell those options.
There are several reasons why the next-month-out options usually sell for less on Monday than they do on the previous Friday (especially if they are calls):
Two extra days elapse for decay to take place (Saturday and Sunday).Many investors who sell covered calls do that selling on Monday, and that depresses the prices of those calls.Markets are generally weaker on the Monday after an expiration.
All three of these reasons support the notion that even though there is a small cost to buying back out-of-the-money soon-to-expire options on Friday, the new options can be sold for sufficiently higher prices on Friday to more than cover that small cost.
Next Tuesday we have a mini-expiration when the September quarterly options expire 11 days later than the normal September options. At this expiration, none of the above three reasons is in effect.
Here is the risk profile graph of our Durable Diamond portfolio going into next week's mini-expiration. You can see that we will make substantial gains if the stock ends up at any price above $110 in two days. If it falls below $110, we will do just fine as well because we will roll over September 110 quarterly puts to October at a very high price, and use the substantial cash we collect to add on new calendar spreads.
How often do you have the opportunity to make 18% on your total investment in only two days? That is what we are looking at right here, just as long as DIA does not fall below $110.
More next week.
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