Expiration Friday's Effect on the Market

Discussion in 'Options' started by BobbyMurcerFan, Feb 21, 2003.

  1. Can anyone shed some light on how expiration Friday can potentially affect the market for the underlying? Thanks a lot.
  2. chop chop
  3. Can you explain the mechanics that cause this "chop"? I heard today that expiration should actually keep the market from dropping too far today and add some support--that doesn't sound like chop to me.

    Thanks a lot, I appreciate your help.
  4. sure but not now, slot machines spinning like crazy right now.
  5. No prob & I hope you're getting some cherries coming up :)
  6. Indeed.....this AM I was watching TARO,,,,had huge earnings the other day.....trading around $34.50......the Feb 35 calls were asking a nickel.......I had to make a couple of calls and grab a quick serving of cereal and fruit......came back within thirty minutes.....TARO was at $35.50.....those calls were not at .85 cents.......nice return on your money of nearly 20X ........forget vegas....if you want risk reward scenarios that are mind boggling with better odds.,.....take an options expiration Friday.........
  7. http://www.supercc.com/papers/Pinning.pdf

    also if you do a google search for "pinning the strike" Cramer at TSCM has written a couple of good articles about how options exp effect the underlying. Google should be able to find them. There was one that was especially good that helped explain it to me a few years back.

    not as prevalent today though with stock prices so beat down but the PMCS and AMCC's used to dive or ramp 4-5 points into the strikes on options exp day where the big open interest sat back in the bubble days.

  8. Dead on, it's the hedger's activity that drives prices on expiration days. Besides pinning, there is another effect: dynamic hedgers will rebalance their hedging portfolios on these days and when they buy and sell they do it "at the market", they don't wait for a good position to enter/exit that's why S/R lines traders get faked out a lot and there is a lot of chop: GS comes dumping MSFT, 5 minutes later morgan stanley starts to buy MSFT like crazy.

    Darn it's slow right now.
  9. when a stock is near an option strike with a large
    open interest. There is a tendency for it to be pinned
    near the stock. That is the stock gravitates toward
    the strike.

    so now the question is why?
    If we take as a given that:

    1. People are risk averse when it comes to keeping gains

    2. People are risk loving when it comes to avoiding losses

    Those who are long the strike are long the stock above the
    strike and short the stock below the strike.

    thus with large open interest many take their profits by buying
    stock slightly below the strike and then selling it slightly above.

    Those who are short the strike don't want to lock in losses by
    negative scalping the stock(buying above and selling below)

    As it gets later in the day, those long the strike are willing to buy
    and sell closer to the strike.

    those short get more confident of a pin and thus less likely to
    negative scalp.

    There is more to it, concerning exercises and assignments.
    write me if you are interested.

    My two cents:)
  10. you're right, i know of no other place with such risk reward bets as the stock market. in my post, i was talking about the e-minis they were on turbo mode this morning
    #10     Feb 21, 2003