This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Hanging in the Balance Ahead of Expiration

Another option expiration week is upon us, and we are knee-deep in the related ritual of gauging, gaming and maneuvering of positions that precedes every third Friday of the month. I've never been one to try gaming the bias or direction of expiration day for speculative purposes, but I do keep aware of what levels still retain high open interest.

Understanding the potential impact option expiration can have on trading activity can help you interpret the action and not be overly influenced by what are likely to be temporary price dislocations or otherwise unexplainable surges in volume.

Indeed, the one reliable byproduct of option expiration is an increase in trading volume. Higher volume is a result of investors needing to close out expiring positions. The challenge then is to determine if, how and why this increase in volume can influence price action in the underlying shares and in the overall market.

Currently, the likelihood that this week's expiration will create a directional bias across the broad market seems remote. This is because the indices are now trading in the middle of their recent trading ranges, and the remaining open interest in the nearby strikes is relatively low and fairly balanced. As of Wednesday morning, with the S&P 500 Index trading at 1233, the 1230 and 1235 strikes each have about 25,000 contracts still open in both the puts and calls. The 1225 strike has the peak open interest, with 129,000 calls and 106,000 puts still open. This level could act as a magnet, but with the configuration being in balance, I don't foresee any buy or sell programs kicking in.

Remember, the SPX options actually cease trading on Thursday's close and are settled on the basis of Friday's opening price. In the Nasdaq 100 Trust (QQQQ), the strikes of peak open interest are the $40 call with 232,000 contracts and the $39 put with 168,000 contracts. This could keep the ETF, currently trading at $39.60, bound between those strikes.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
DELL $0.00 0.00%
BBY $32.08 0.00%
VLO $58.87 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs