A Blessedly Quiet Finish to the Week

Could it be that the week will actually end on a quiet note? Of course, as investors head to the exits to start their long weekends early, liquidity might thin out. Coupled with options expirations, that could create some price vacuums and sharp price swings as we head into the last 90 minutes of trading.

For market makers, this is a chance to feast on retail traders that will need to close or roll March options. These market makers might expand the bid/ask spread and do some short-term scalping. Market makers tend to be long gamma, especially heading into expiration, meaning they can take advantage of intraday price swings to make short-term profits.

Even though implied volatility/time decay are working as a headwind (as the value of the option will decline as the day wears on), buying gamma, or owning volatility, does not need be a losing proposition if the underlying security has sufficiently large price swings. And we are certainly seeing that among commodity related issues and to some extent the financial stocks.

It's been a few weeks since I recorded this video that commodities are ready to combust. That prophesy finally came to pass last week. The theory was that if the broader market could not mount a sustainable rally than people would selling the commodity and infrastructure names such as Joy Global (JOYG - commentary - Cramer's Take) Mosiac (MOS - commentary - Cramer's Take) and metals such as Yamana Gold (AUY - commentary - Cramer's Take) to book profits and raise capital to offset losses they were incurring in other areas such as the financial sector.

Well, now I'm about to change my tune. I think the above was accomplished in the past few days and now money managers will look towards getting back into those names. They still have good gains for the year-to-date, and these managers want to focus on names they want to be holding, and therefore marking up, as the quarter come to an end next week.

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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 appreciates your feedback; click here to send him an email.

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