Often "expiration" of options implies something undesirable in the end of an option's life, but the final week before the expiration actually creates some unique opportunities for short-term traders. Read on below for a couple of my favorite expiration strategies.

Expiration Strategy #1: Buy as stock moves from out to in the money

The greatest leverage point for an option's gain or loss occurs as it moves through a key strke price. For example, on Tuesday February 14th we recommended the Home Depot Feb. 40 call as the stock started to move from under 40 to above 40. We sent this call as a buy at 0.60 ($60 per contract) and it closed at 1.10 ($110 per contract) as the stock moved up from 40.29 to 41.05.

Strategically you want to see the stock hold above the strike price, in this case 40, in order to capitalize on the positive leverage of the calls as the stock moves further into the money. Generally we like to take at least half of the option off the table when it hits a 100% profit (which we sight to do on Tuesday afternoon but could not get filled - so we'll seek to do this again on Wednesday). We did this with our Monday call purchase on Taser (TASR) calls as the stock moved from just over 10 to open Tuesday at 11.10, moving our $50 option up to $105 in just 24 hours. We're still holding the other half of the Taser call at what we consider a "free trade" as we've already captured back our initial risk premium by selling half at a double or more.

Expiration Strategy #2: Buy as stock is already nicely in the money

A way to further manage the risk of time decay is to buy the option that is 1 strike deeper in the money in order to have a safer selection in case the stock fails to move much either way. For example, when Apple Computer was around 67, we decided that the safer choice was the Feb.65 call which was already 2 full points in the money, as opposed to the Feb. 67.50 call that was out of the money. Sure, if the stock goes quickly to 70, the out of the money call will get better leverage, for for a slow move to 68 or 68.50, the risk/reward will be better on the in the money 65 call (and especially if the stock flat lines).

Time decay will accelerate as you get closer to the expiration, but the further an option goes into the money in the expiration week, the more the time decay will literally go to virtually nothing anyway. So if a 65 strike call option is trading at 3.10 with the stock at 68, that's 3 points of intrinsic value and only 10 remaining cents of time decay risk. So this strategy is like leasing a stock for 5% of the stock's cost, for a short-term trade with 20-to-1 leverage.

Certainly these expiration trades must be managed carefully as a flip back down can still lead to losses, though as a trade goes from in the money to at the money, the option will pick up some time value to salvage something if the trade turns against you. But all in all, I love the final week of options expiration to take advantage of these leverage points for short-term active trading.

Price Headley is the founder and chief analyst of BigTrends.com.