This is the first time in quite a while that this week does not feel like an options expiration week. The major stock indexes seem to go higher everyday that the U.S. Dollar Index declines and everything seems rosy. However, let the games begin and they will be played. The reason that I say options expiration week is because most retail options traders will really never exercise their options. They will usually close out their options trade before the Friday expiration and settle the trade for a gain or loss in the premium paid. Therefore, it is very common to see a lot of games that will be played on many leading stocks by the institutional money.
Often the when the market indexes trade higher or lower during the first couple of days of the week the latter part of the week will do the opposite. For example, this week the stock market indexes rallied into Wednesday and may be due to pullback today and tomorrow in order to shake out the small retail options trader. Therefore, we always say that options expiration week is a week to trade short term.
Just look at the recent action in many of the leading NASDAQ stocks. Stocks such as F5 Networks Inc.(NASDAQ:FFIV), Citrix Systems Inc.(NASDAQ:CTSX), and Akamai Technologies Inc.(NASDAQ:AKAM), these are just a few names that have seen huge volatility late last week and early this week. This is usually done by the institutional money to shake out the weak handed retail options trader. Some other very volatile stocks have been Salesforce Com Inc.(NYSE:CRM), and Netflix Inc.(NASDAQ:NFLX). These stocks obviously had a lot of options activity and will be volatile into the Friday expiration.
As a trader it is very important to know when options expiration is approaching. For many of you that do not know it is the third Friday of the month. However, many stocks that seem to be just soaring along without any problems will usually hit some turbulence within a week or or two before expiration as the institutional money tries to shake out the weak hands. Unfortunately it is usually the small retail investor.
Nicholas Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
