Do you know what today is?
Weird Wally Wednesday is the Wednesday before the week of options expiration Friday (third Friday of each month) and is typically very volatile.
OPTION PREMIUM DETERIORATION
Weird Wally Wednesday, coined by Don 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.
FOR EXAMPLE
Typically on Weird Wally Wednesday you will find a nice move lower to only be met with an equal move higher. Just don’t get married to a bias too long on WWW. Some days it’s a non-event but I remember taking note over the years and it became a day where I knew a lot of traders would get chopped up. The key again is not to get stuck to one bias just stay in trader mode. Remember there could be a very big undercurrent that’s causing the shifting in the markets. The goal of writing about this is to be more aware of what could potential causing extra volatility. Here’s an example of last month’s trading action on the SPY on February 6, 2013.
BE READY FOR A ROLLER COASTER
Using Weird Wally Wednesday as a guide, it is not uncommon to see strong moves up or down in the market place on the Wednesday prior to options expiration week. This day can be a roller coaster day and I have found that most traders are unaware of the undercurrents of the market that create extra volatility. I personally have this day marked for each month.
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