I've got a pile of cc that I would normally have open, but am waiting for Friday (most likely) to open. It's mildly agonizing doing nothing with them.
My concern with selling this Friday expiration is that gamma squeeze idea. I'm still learning about it, but based on what I know right now it is likely to push most of my trading out of expiration week.
Here is an example from this morning, using a position I closed a bit earlier this morning. The 675 call for this Friday expiration is currently trading at 2.60 and has a delta of .189 and a gamma of .01. Gamma will continue to rise as this position were to get closer to the share price, but I'll ignore that for this example.
On a $25 move up in the shares ($650 to $675) and using only delta I would expect that $25 move to increase the option price by .189*25 = 4.75. New option premium is 7.35.
But it's a lot worse. The .01 gamma means that each $1 move in the shares increases delta by .01. So that .19 (rounding) delta will increase .25 over that same move to .44. Let's average the new deltas to approximate - .44+.19 = .63/2 = .315. That $25 move will actually experience something closer to a 1/3rd (.33 - rounding again to make the math easy and be approximately correct) option price move of ~$8. The 2.60 option is really more like 10.60.
It's actually a bit worse than that as I rounded gamma down (a little, not a lot) to .01.
Time decay will be offsetting this increase to some extent - just not enough.
I still have a lot more to learn about this idea, but a quick takeaway from the initial view into this, is its an important component of why some people get out of trades with 21 days to go. I won't be doing anything that far out - I want to be adjusting strikes too frequently, if nothing else, to go that far out. But I will be increasing my bias to closing early in the week of expiration rather than riding things to the end of the week.
In this particular case I'm not concerned with a sharp move down of say $20 or even $40 - I consider those very unlikely. I AM concerned about a $50 move up. I don't really expect that either today or this week, but I also consider it to be possible and if it were to happen I don't want to be in front of it. So I closed some 675 calls for this week expiration at something closer to a 70% profit over the 90%+ profit that I think I would likely receive later in the week.
In short - I DO think 675 is safe for sold calls this week - I just don't think that it's safe enough for my income oriented strategy. If this weren't week before earnings I would be much more likely to let it ride another day.
My plan with these CC positions that I normally keep open but currently have closed is to wait for later in the week - probably Friday - and sell into the higher IV and share price that I expect then. In my case - sell the rumor and buy the news - looking for IV crush and post earnings share price drop.
