Monday, April 7, 2025

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Bonus report for Rapid Trade readers: What Are Short-Dated Options And Why Are They Different Than "Normal" Options?

As you might have noticed, our experts like Nate Tucci, Lance Ippolito, Graham Lindman, and Chris Pulver talk a lot about options.

Since many traders are new to options, we wanted to provide a few, quick resources to get you up to speed. Keep an eye out for the next few reports that will dive deeper as well!

Today’s report covers: 
 
• A Quick Primer on How Options Work
• Why Does Expiration Date Matter So Much?
• Short-Dated Options vs. Standard Options
• The Surge in Short-Dated Options Trading (and why)
• The REAL Difference When it Comes to Trading

A Quick Primer on How Options Work

Options are financial contracts that give the buyer the right (but not the obligation) to buy or sell a stock at a specific price (the strike price) on or before a certain date (the expiration date).

There are two main types:
 
• Call Options: Give you the right to buy the stock at the strike price.
• Put Options: Give you the right to sell the stock at the strike price.

The cost of an option (its premium) depends on several factors, but one of the most important factors is how long it has until expiration. That is when the contract ends meaning your time to make money on the option is over.

The further out the expiration date, the higher the premium because the stock has more time to make a significant move. As we get closer to the expiration date, the “time value” portion of the premium shrinks quickly — this is known as time decay, or in technical terms, “theta.”

Why Does Expiration Date Matter So Much?

The expiration date dictates how long the stock has to move in your favor (for a profit) or against you (leading to a potential loss).
 
• Shorter-dated options have less time for the stock to move, so they’re cheaper — but also riskier, because the stock has to move quickly for the option to be profitable.
• Longer-dated options hold more time value, making them more expensive, but providing more of a cushion against short-term price moves.

Short-Dated Options vs. Standard Options

Now that we know the basics, let’s look at what makes short-dated options — those expiring in a week or less — stand out compared to standard monthly contracts (around 30 days to expiration).

1. Less Time Value = Lower Premiums and Higher Risk
• With short-dated options, you pay less upfront because there’s minimal time value left.
• That lower cost can be attractive, but since there’s so little time, they can lose value (or gain value) extremely fast.

2. Rapid Time Decay
• If the underlying stock doesn’t move in your favor quickly, the option premium can rapidly decline.
• In technical terms, we call time decay “theta.”

3. High Sensitivity
• Even small stock price changes can cause big percentage swings in short-dated options
• In technical terms, we call this sensitivity to the stock’s price changes “gamma.”

Lately, lots of traders have shifted to these short-dated options.

The Surge in Short-Dated Options Trading (and why)

In fact, over the past three years, trading volume for short-dated options has soared.
• In January 2025 alone, nearly 1.2 billion options contracts were traded — setting a new record.
• Cboe Global Markets estimates 14 billion contracts could be traded this year, a big jump from the 12.3 billion in 2024.

Those are big numbers, but how would that increased popularity affect a trade we might take in our own account?

Here’s an example on Apple (AAPL).

Below is a picture of a Call option that expires in 30 days:
 
 

The price of one of these options is over $9.00, meaning it would cost more than $900 to buy one contract.

Now look at the option chain for AAPL with a Call that expires in 2 days:
 
 

Open Interest is still very high, but the cost is only around $3.50 — roughly one-third of the 30-day option’s price. That makes it much more accessible for smaller accounts or for traders looking to buy more contracts if they like a setup.

When something new  hits the market — be it a stock, ETF, or even a fresh way to trade options — traders usually hang back to see how it plays out. And that low volume can lead to poor fills and difficulty entering or exiting positions. 

But, as you can see, short-dated options have done the opposite: they’ve exploded in popularity!

The REAL Difference When it Comes to Trading

Short-dated options trade differently than standard options:
 
1. Explosive Potential: Catch the right move, and short-dated options can yield significant gains in a day or two.
2. Rapid Time Decay: If the stock doesn’t move quickly in your favor, the option’s value can vanish fast.
3. Higher Sensitivity: Every little move in the underlying stock has an outsized impact on the option’s price.

Short-Dated vs. Regular Options: A Quick Comparison

Let’s compare a short-dated call option vs. a standard monthly call option on AAPL trading at $240:
 
 

As you can see, the shorter expiration on an option means bigger potential gains and bigger potential losses.

The Takeaway

Short-dated options are a high-risk, high-reward game. With surging popularity and low premiums, they’ve become a go-to for traders looking for fast moves.

In my opinion, it’s fine to use these kinds of options if you have high conviction in a certain trade, but you should always manage your risk very carefully.

Personally, I prefer strategies that flip time from being a risk to being an advantage.

If you’re new to options, that might sound complicated, but it’s what I do every day inside the Overnight Income Project.

Tomorrow, I have another report for you that goes deeper into how I turn time from an enemy into an edge.

— Nate Tucci
 
   
 
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