Do you know what sign this is?
It’s a stop sign, obviously.
But you didn’t need to see the word STOP written in all-caps to know that, right?
EVERYONE needs to know that is a stop sign — even without words.
Just knowing, though, doesn’t mean you’re a good driver.
Or that you don’t break too hard.
Or that you don’t drive too slow in the left lane. (MOVE!)
But it does mean that when you see the sign ahead, you know you’re supposed to stop.
The same is true for options contracts.
Know the Rules!
Many traders jump into options without ever knowing the basic rules of the road.
For instance, here’s a question for you: What time do options stop trading?
If you said 4 p.m. ET, you are mostly right …
But not 100%!
Index options such as the S&P 500 Index (SPX) and VIX trade until 4:15 p.m. ET.
Here’s another one: When is option expiration?
If you said Friday afternoons, you are also mostly correct …
BUT SPX monthly options expire on Friday mornings … and VIX index options expire on the Wednesday 30 days prior to the next SPX options expiration. (Figuring out Easter isn’t that complicated.)
These are basic things that every trader needs to know BEFORE they make their first trade.
Electronic trading firm Interactive Brokers was involved in a pretty large class-action lawsuit around VIX expiration because traders did NOT actually know the expiry date.
While it might sound silly, there is a whole host of traders who do not grasp basics related to things like how to decipher different expirations and strike prices.
Or, say, the difference between exercise and assignment.
These are incredibly important to understand BEFORE you start trading …
Mark’s Driving School
So here’s some news: I will be releasing a series of videos in the coming weeks that are essentially “Rules of the Road” for options.
If you are newer to trading, I want you to pay attention when they come out and watch them closely.
And you know what? Sometimes experienced drivers miss a stop sign and have to go to driving school, too.
The first video drops this weekend.
See you there!
Your Only Option