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.

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