A recent article I wrote on the best time to own options from a volatility standpoint caused some confusion, so I’d like to try to clarify a few things here.

My opinion, based on both data I ran for my book, Options Volatility Trading: Strategies for Profiting From Market Swings, and anecdotal experience, is that options volatility behaves differently at different parts of the expiration cycle.

I used the CBOE Volatility Index (VIX) as a proxy, not because it’s the best measure out there, but rather that it has the broadest data set to work with. And, purely on a VIX basis, I found that the optimal time for initiating a long options position is with about three weeks to go until the next options expiration.

Here is where my point gets confusing on several levels.

First, this does not solely apply to front-month options. In other words, I’m not saying, “There are three weeks left before March expiration, go buy March options.”

What I meant was that options volatility across the board tends to trough at (or near) three weeks before expiration.

Second, I’m not saying, “Go back up the truck with long calls.” Or long puts. Or straddles or strangles.

What I am saying is that IF you have a mind to employ a strategy that involves net buying options, I would not initiate it just before or just after an option expiration day.

Again, though, that’s net buying of options in any expiration cycle, not just front-month options. As one OptionsZone reader correctly pointed out, the daily time decay of an options gets steeper and steeper the closer you get to expiration. So whatever edge you may get in volatility waiting an extra few days may be offset by the higher daily time decay. In return for that extra decay, though, you get additional gamma and the ability to profit from moves in the stock. But I digress. So let’s say we look at a hypothetical trade.

Suppose you expect stock XYZ to make a move soon but aren’t sure in which direction. Your play of choice is a long straddle (buying both the near-money calls and puts). Pretend for a second that you had this notion right before February expiration.

My sole contention is that unless you expected the move right then and there, I would hold off on initiating this XYZ trade. Option volatility tends to act poorly just before and just after expiration.

Why is that?

Well, call writers tend to roll their short calls around expirations. And, on the margins, this pressures volatility across the board. What I suggest is to let them do their thing and wait until later in the week before initiating the trade.

Here’s another way to look at this. Completely forget about time decay and buying actual options. Suppose you could buy and sell the actual VIX, and all you had to do was adjust it for day of the week biases, i.e., the VIX is “heavy” on Fridays and buoyant on Mondays (a subject for another day).

But say you can only do a round trip once per expiration cycle; in other words, you can buy it once and then sell it back out, that’s it. My numbers suggest your best path to profitability would be to buy the VIX with three weeks to go until the next expiration, and then sell it back out with a little over one week to go before that expiration day.

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