It should not come as a surprise for any trader that has been trading for a while that the market is more volatile and choppy around options expiration week and more precisely on the exact expiration date. It is known as the Shake n’ Bake week for the retail traders….
Options Expiration happens each third Friday of the month.
Options Expiration can impact the markets (etf’s, stocks and futures)
Even if you are not an options trader it is important to know how options expiration impact stocks, etf’s and futures index prices the week of the expiration and more so on the exact expiration day.
Within options expiration week the market tends to have a back-and-forth action driven by the exposure of option traders causes stocks to remain close or be “pinned” to strike prices. This is called PINNING.
“Pinning” refers to the price of an underlying stock trading closer to an actively-traded option strike price than it would absent the options activity.
Psychology: Many investors don’t wish to run the risk of the stock gapping down at the Monday open, so they enter stock positions designed to keep the stock price away from the short strike of their options — this is particularly true for investors and firms with large option positions relative to the trading volume in a stock.
So now that you know need to adjust to the market conditions and ride the waves. And this is what we did this week, we have adjusted our stops so we do not get dinged out of trades by institutional force selling in our long positions.