Can options expiration affect the share price?

Discussion in 'Options' started by stockmarketbeginner, May 17, 2018.

  1. I'm looking at a stock that went up rapidly. As a consequence of the rapid price rise, the stock has many surprise deep-in-the-money calls (they started out far out of the money) that are going to expire tomorrow.

    Can the expiration of these options affect the share price of the stock? I'm not sure what happens to the price of a stock when "lottery ticket" options actually come true and then it is expiration day and the obligations have to get settled.
    Last edited: May 17, 2018
    murray t turtle likes this.
  2. tommcginnis


    You ask a fair question, around which much has been written.
    The basic set-up you describe is (in effect) a short squeeze, but from the short option to the long equity-holder. If we assume any sort of call-to-equity 'balance' around a regularized range of prices, and then a run-up into a range where there had been not-so-much trading, the resulting surge in demand for liquidity and for long/ownership resolution will certainly be a lead for market prices to be bid up.

    At the same time, though: watch the volume transacted. If you were a long-equity holder, and prices shot up, would you not ask, "Is this it? Is this 'time-to-sell'?" and then liquidate your position to those pained call-holders?

    [Thus, there will still *eventually* be a re-balancing -- but the slower that re-balance (should the Ask climb up in hoped-for reluctance), the greater will be the climb.]

    I just googled, and got a crap-ton-load:
    and a [very] quick scan suggests some solid content.

    Have fun!
    Last edited: May 17, 2018
  3. In short, yes, but not the deep ITM options. The writer will have hedged in anticipation of delivery of deep ITM, so it won't filter through.

    Here's a better picture of options affecting share price. HSY from 3 days ago:
    vanzandt and tommcginnis like this.
  4. truetype


    What's the ticker? Or is that a secret? :confused:

  5. Q: Can options expiration affect the share price?

    A: No ...... The tail does not wag the dog.
  6. lindq


    But a big enough tail wagging hard enough can indeed wag the dog.

    To extend the analogy to options pricing, there's a lot more involved than just the underlying. A sharp enough move in the VIX may force big players to adjust their positions, which can and often do involve participation in the underlying.

    So yes, under certain conditions, the tail can wag the dog.
    Last edited: May 17, 2018
  7. spindr0


    I would surmise that conversions and reversals affect share price because stock may be bought or sold, depending on which side the MM is on but I would guess that the effect is minimal. Yes, no, maybe?
  8. Q: Can options expiration affect the share price?

    A: Does the pope go to church?
    tommcginnis likes this.
  9. Thanks. That is an interesting point about the VIX.

    • Tomorrow is option expiration.
    • Could you post a stock and how it will be affected tomorrow due to the options expiring?
    #10     May 17, 2018