A funny thing happened on the way to new highs. The media suddenly don't need the options-expiration event to fill the insatiable demand for new headlines.

Not long ago, whenever there was a dearth of good news that could gleefully be reported -- stocks stink, scandals abound, bonds are boring, war is abhorrent and any rebound under 30% is not to be trusted -- business news outlets could at least count on an article or interview discussing option expirations to spice things up once a month.

More important, every quarter the market would get the event known as

triple witching. More recently it has been upped to quadruple witching, with single stock futures included with equity, index and futures expirations. Invariably, these days resulted in more fizzle than sizzle.

But without sounding like

Chicken Little, I think this Friday's expiration could actually produce some price swings beyond the usual hype.

A simple contrary approach suggests that an expiration's potential impact and ability to catch people by surprise should have an inversely proportional relationship to the attention being paid to the event. If this holds true, we should be braced for a substantial pickup in action.

A Launching Platform From Which to Dive

In recent months, the falling market volatility index (VIX) has been the focus of many. I've written my share of words on this subject and I maintain that a declining VIX, which hit a new 10-year low of 12.51 on Monday, should not be taken as a bearish signal. Volatility is nondirectional, so if you want to use the VIX as a contrary indicator, beware that its current low reading has the same predictive value of a move higher as it does a move lower.

While the recent decline in the put/call ratio -- the 21-day moving average has plunged from 0.72 to 0.58 in nearly vertical fashion -- would normally be taken as a bearish sign, I again aver to the philosophy that the direction and relative trend are more important than the absolute change or level.

Open interest configuration is most important for gauging expiration's immediate impact. This includes not just the sheer number of contracts still open, which is currently slightly above the average of the last 12 expirations, but where the peak in-the-money open interest lies.

With the

S&P 500

punching through 1200 on Tuesday, that pushed an additional 56,000 December calls into the money and knocked just 24,000 of the December 1200 puts out of the money. If the S&P can hold above 1200 through midday Wednesday, it should kick in some buy programs. Remember, SPX options cease trading on Thursday afternoon and settle based on Friday's opening.

Another positive is the fact that the

Nasdaq 100 Trust

(QQQQ)

just pushed some 168,000 of the December $40 calls into the money, which makes that the strike of peak call open interest, which could propel that index higher.

But beware that once December expires, there is very little insurance in place to support the market if things turn sour. For example, while the Nasdaq QQQQs have more than 438,000 puts still open at the December strike, giving the December open interest a put/call of nearly 2.41, the January series supplies no such safety net. Currently there are just 310,000 puts open in the $38 and $39 strikes combined.

The SPX's put/call ratio drops off even more precipitously from December's 1.35 to January's 0.91. This suggests that if money managers don't start rolling their protection in the next few days, they will be riding on these highflying stocks on confidence alone. That will leave them vulnerable to a crash without a net when December's options expire.

Death, Taxes and Expiration

I may be missing some stories somewhere, but this week's expiration has received the least coverage in the two years I've been with

RealMoney

. Of course, as often happens when there are bigger things to talk about, the lesser subjects get shuffled to the bottom.

With concerns about rising oil, a falling dollar, a renewed infatuation with IPOs exemplified by

Google

(GOOG) - Get Report

, and an increase in high-profile mergers such as

Nextel

(NXTL)

-

Sprint

(FON)

and

Johnson & Johnson

(JNJ) - Get Report

-

Guidant

(GDT)

, it's no surprise that the repetitious passing of those wasting assets has not received top billing this month.

But be sure that the above items, along with the growth of exchange-traded funds, have contributed to record option volume: It's running some 31% ahead of 2003. This is not to suggest that the tail is wagging the dog, but it is important to recognize that option trading has an increasingly important influence on the financial markets' short-term direction.

The Trend Is Your Friend in Need

The rule of thumb is that option expirations will exhibit a bias consistent with the prevailing trend. According to Gary Brieman, market strategist with Greenwood Capital, when "the S&P 500 index is trading 10% above or below its 100-day moving average, expiration week

as measured from Monday's close to Friday's close has resolved an average of 1.3% in that direction."

This seems somewhat self-fulfilling, as most trends usually continue until they don't. But a move of better than 1% for one week makes you stand up and take notice.

A grain of salt may need to be taken with Brieman's work here, however. It does encompass eight years -- starting in 1996 and including 96 expiration periods -- but if you remove the dozen events during the exceptionally bullish 52 weeks from February 1999 to February 2000 and four very bearish periods (August 1998, March 2001, September 2001 and July 2002), the average trend-continuation move shrinks to a more modest 0.3% for the described weekly period. No doubt it has a positive correlation, but it's a rather slim reed on which to hang an investment thesis.

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 invites you to send your feedback to

steve.smith@thestreet.com.