Options expiration…you either love it or hate it. Many see the week as one of market manipulation while others see it as an opportunity to make some serious coin. I love option expiration week because one cycle is ending and another beginning. I’m closing out the prior cycle and stalking my positions for the next so I’m relatively busy during expiration weeks.
This particular week is what’s called “quadruple witching” where the stock index futures, stock index options, stock options and the single stock futures all expire. This event occurs every option expiry in March, June, September and December. The only difference between triple witching and quadruple witching is the expiration of single stock futures and I’m not 100% sure but I believe SSF are on the same path as mutual funds.
If you are interested in learning how to effectively trade options on expiration week the best book is Jeff Augen’s “Trading Options at Expiration” The title kind of gives it away, no? I can highly recommend any of Augen’s books regarding options as they can add value to anyone’s trading. For those that prefer the web, I’ve collected a few pertinent links regarding options and options expiration from some of my favorite blogs and market participants.
- Bill Luby shares why he doesn’t like trading on option expiration days. Great advice that all should look at their trade metrics to see if it makes sense.
- The MarketSci Blog shows that the week leading up to options expiration have been bullish but also points out some interesting monthly statistics worth a look.
- Trading The Odds looks at seasonalities of option expiry
- Ripe Trade has an interesting take when looking at option expiration Friday
- Rob over at Quantifiable Edges discusses some historical numbers regarding exceptionally high volume opex days
- Fred Ruffy discusses the idea of “Max Pain” from a post back in 2005
- The NY Times looked at one of the more famous academic studies done on the theory of option pinning.
- Adam Warner of the book “Options Volatility Trading” writes about some potential changes to come in option expiry due to the introduction of weekly options.
Whether or not you trade options, it pays to have an understanding of the potential impact the derivative has on the underlying. I don’t trade currencies or treasuries but I have an understanding of how they impact equities. If you have some good links to option expiration articles that I may have missed (I’m sure there are many) feel free to post them in the comments.