Hi Everyone!
If you have been doing ITM from the start last September you know that having doubled your money its time to roll up and roll out. I have been getting a lot of queries about volume and open interest and how it affects ITM.
It will help if we look at open interest & volume and the relationship with the expiry date. The table below shows that as we get closer to expiry the volume picks up hugely. If you look at the strikes that are having the huge increase in volume you will see that they are all about 1 – 2% above the current price. (I’ve used a strike of 420 as an example as it is a round number just over 1% away from the current price)
Why does this happen? Because traders are selling options hoping that they will not get exercised, and traders buying options are hoping that the price will move up and they can exercise at a profit.
It gets quite frenzied as you can see from the table! Reminiscent of the movie Trading Places which is worth a look if you haven’t seen it.
Luckily, with ITM you don’t have to be part of this frenzy. Firstly we are trading DITM with very little time value and secondly we are always out of our positions at least a month before expiry. So we can afford to sit back and be amused at the craziness!
