OPTIONS EXPIRATION WEEK WILL MAKE AN OLD MAN OUT OF YOU
This is expiration week. Anytime you have an expiration week you have a myriad of interests converging upon the financial markets. Whenever a myriad of interests converge upon anything at once, be it a laundromat, a 7-11, a car wash or the financial markets, patterns of behavior are going to change. Volatility ensues.
Here are a few of the customers who enjoy playing in the options expiration circus:
- You have those traders who are short puts or calls and looking for their positions to expire worthless. When things begin unraveling during expiration they are forced to cover the position or hedge with underlying.
- Then you have those who treat option expiration week as a time to take advantage of depleting time premiums in order to create some opportunity for extraordinary gains. On the other side of the trade, you have the market makers who are forced to cater to these aggressive types and must hedge their books with the underlying.
- Let's not forget about those who are rolling positions over. A hedge, a speculative trade that needs more time, a spread or a straddle. Expiration brings with it the need to renew contracts. This equals increased volume which causes increased volatility.
And let's not forget about the small fact that the QQQ and SPY are both flirting with important technical points here and now.
With all of these facts, it should be no surprise to see the markets twist up and spiral down. Rinse and repeat. That will be the modus operandi during the entirety of this week.
Enjoy!
