Options Expiration Week

    What is Options Expiration Week?

    The week beginning on Monday prior to the Saturday of options expiration is referred to as options expiration week. This week can be slightly more volatile as options holders begin to exercise their options contracts and roll forward their options to ones with later expiration dates. Since the markets are closed on Saturday, the third Friday of each month represents options expiration. If the third Friday of the month is a holiday, all trading dates are moved forward; meaning that Thursday will be the last trading day to exercise options.

    Options in one of four security classes will expire every month; stock options, stock index options, stock index futures, and single stock futures. Stock options and index options expire every month, single stock futures (SSF) and stock index futures will expire four times per year. Four times per year, all four security classes will expire; this is commonly referred to as "quadruple witching" and usually occurs in March, June, September, and December. Prior to the advent of single stock futures, this occurrence was known as "triple witching".

    In the past, options expiration and especially triple witching would result in volatile swings as traders would scramble to cover positions and roll their options forwards; however, the recent changes in the efficiency of the marketplace over the past ten years have lessened the volatility of options expiration week. In reality, we now see a spike in volume but the exaggerated price effect due to the large trading activity is no longer there.

    "Weird Wollie Wednesday", created by Don Wolanchuk, references the Wednesday prior to options expiration. The observation made by Wolanchuk stipulates that this day is made up of manipulated price action which is primarily related to the faster deterioration of options premiums during the week prior to options expiration; many traders are rebalancing and rolling their options forward. Using WWW as a guide, it is not uncommon to see strong moves down in the market place on the Wednesday prior to options expiration week.

    To view the options expiration calendar, visit the following site: http://www.cboe.com/TradTool/ExpirationCalendar.aspx

     

    Tim Ord
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    Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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