I'm currently long a Google (GOOG) - Get Report put spread. I've been calculating the option values given different scenarios, different stock prices, time to expiration, etc. One thing that jumped out at me was that Google options, especially if they are trading right at the strike, tend to maintain a slightly positive yet material value, right up until zero days left. For instance, with much less than an hour left, they still can be valued at 30 cents to 50 cents.I need to decide at what point I'm going to cover the short puts, or whether to let them expire. Will the options that are close to the money retain some positive time value at the close on Friday?Ideally, I'd like to close the position out for its maximum profit of $10, but I may end up taking less (assuming the trade goes my way) depending on how the options retain time premium. Thanks very much for your insights. -- S.M.

All at-the-money options, not just Google's, will retain some value right into the cessation of trading on the final Friday in the life of the contract. One of the reasons is that equity options technically do not expire until the following Saturday morning. This means that any news released after the close could influence option owners' decision to exercise the option, even if it was out-of-the-money on the basis of Friday's closing price.

But for the average investor, the risk/reward of carrying an option position until expiration rarely makes sense.

Treacherous Waters

The trading floor is littered with the wreckage of investors who have tried to steer or dock their positions at the maximum profit point that can be realized only at expiration. As expiration approaches, navigating a position becomes infinitely more risky and difficult. This is because the time decay accelerates the options' gamma, or increases their sensitivity to changes in the price of the underlying. This in turn makes the positions' value more akin to holding the stock but trading in the less-liquid options market.

While electronic markets have made the playing field pretty level, "the statistical edge swings totally toward the professional trader once you get to the last week of trading," says Tom Sosnoff, the CEO of ThinkorSwim, an online brokerage firm specializing in options trading.

For options that have 30 days or more remaining, a patient customer can be fairly confident that he can get orders executed at fair market value. The multitude of variables makes the option's ultimate or true value hard to pinpoint, and that makes it more difficult for professionals to accurately hedge or arbitrage the trade for a definitive financial advantage.

But as expiration approaches and the true theoretical value becomes easier to pinpoint, professionals need only a small edge to lock in a risk-free profit. "Resting option orders become sitting ducks for the market makers to lean on and flip a profit," says Sosnoff. He explains that the professionals and market makers simply are more nimble than individuals, and he sees no reason for customers to go head-to-head with professionals.

When to Get Out

In his trading seminars, Sosnoff teaches clients to close out positions four to 10 trading days prior to expiration. His rule of thumb for credit spreads is that they should be closed once the value of the spreads is 10% or less than the width between the strikes. For example, if one were short a $30/$35 call spread that had a width of $5, the position should be closed or bought back when the value of the spread is down to 50 cents.

Conversely, I would suggest that a long or debit spread with a maximum value of $5 might be prudently closed or sold when it was valued at $4.50 if the position was less than one full strike in the money and there was less than one week remaining. Of course, if all strikes of the position were very deep in or out of the money, one might try closing the positions at more attractive prices.

Learning to avoid the temptation of holding a position until expiration is one of the hardest, but most valuable, disciplines for option traders to maintain. At expiration, the warning about being pennywise and pound-foolish should be heeded.

Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He invites you to send your feedback to

steve.smith@thestreet.com.