Expiration Date is one of the most important factors to consider when trading options. Expiration Date for options, just like Strike Price discussed in the previous section, is a derivative of the underlying assets. That is, you have to be correct on the direction of the underlying asset by a specific expiration date. For example, while buying an insurance on the house, the time period is usually for one year and that is the expiration date. Essentially, Expiration Date is the final moment that an option and, after that, it expires or ceases to exist. So, it is important to know when to close out an option or when to let it expire.
When you look at the Probability Calculator and Statistical Analysis, you will notice that the best options to trade are monthly options, as they are more conservative in nature. If you use a neural network and other predictive analytics, the longer time you are allowing yourself, the more time you have to be correct of the direction of the market and the direction of the underlying stock.
The probability calculator in Figure 10 shows the estimated move that Dow Chemical is going to make, the support and resistance slides, and the results of the Tradespoon Analytics for a period of 50 days. Two very important aspects shown here are Trend and Buy/Sell Rating. The Trend value of 9 means that we are bullish on Dow Chemical. And Buy/Selling Rate of 8 means, looking at the technical fundamental analysis we are very bullish on the stock. Thus, as shown we can use the probability calculator to predict where the stock is heading during a certain time frame. Time Horizon is an important factor in this analysis.
In order to be successful and benefit from options trading, you have to be correct on both time selection and direction. Tradespoon will provide you accurate analytics for predicting stock trade movement into the future. In Figure 11, you see both a ten day prediction and six months prediction. It shows where a stock or an option that you are trading is heading. In this particular example you will see that the stock prices for Dow Chemical are going up. Keep in mind Volatility also impacts the timeframe that you are trading.
Be aware of the difference between Short-Term Prediction and Long-Term Prediction. Some of our models are more accurate for short-term trading, while others like Tradespoon Ideas Bulls and Bears, are more accurate in predicting long-term stock prices. Match the strike prices and expiration months that offer the best risk/rewards given the timeframe being considered.