Be wary of options expiry
Wednesday’s session
began with a short-squeeze pop following PPI news and other econ drivel.
As if that stuff ever matters in the long run, more than one session at the
most. In Wednesday’s case, such “news” didn’t even matter for the first hour.
Anyone who bought the premarket or open for whatever reason were liquidity at
the session highs for traders who knew better than to do that.
S&P 500 traded very technical between floor
trader pivot levels. A gap-up open stalled at R2 for session highs. A break &
close back below R1 soon went to the daily pivot. Bounce from there as expected
went right back to the R1 value, where price action failed again. Next drop to
pivot support was followed by a choppy ascent into the close.
Seldom do we see that type of crisp containment
within several pivot levels, but Wednesday was one of those sessions. Lots of
buy & sell signals all around… solid profit potential within what was
essentially just a 12pt intraday range.
Russell 2000 futures followed suit: three sell
signals, two solid buy signals offered at least +10pts cumulative profit
potential, if not quite a bit more.
S&P 500 futures finally came to rest after ten
consecutive sessions in green. Until proven otherwise, this is merely a pause to
refresh. 1363 and then 1352 are two widely watched levels of presumed support
below. With the 50dma hovering down near 1335 at this time, price action is
obviously extended. That condition will not last forever: the tape will go
sideways while moving average values play catch up, or price action will drop to
lower levels of expected support.
One or the other scenario will happen, sooner
than later.
Russell 2000 futures stretched right out on their
chart, painting green candles thru ten of the prior eleven sessions before
Wednesday’s relaxation. 754+ and then 739+ are two visible levels of support
that 1,000s of traders are eyeballing. 735 near the 50dma is another. A drop to
any of these levels should be met with resting buy stops clustering as we speak.
It would take at least one daily close below the
50dma values in all index charts before the current pause is deemed anything
more than that.
Summation
Today marks the end of trading for Oct index
option contracts… a considerable amount of volume will probably change hands
influenced by those instruments alone. Tomorrow is the expiry of equity options,
too. Next two sessions ahead may be rife with sharp spikes up or surges lower
that seemingly emerge from nowhere. In reality, that is affect of large option
blocks being offset for profit or loss ahead of expiry. If you see some strange
jumps in your tape, don’t let that perplex you.
Also, option expiry sessions are notorious for
having the day’s high or low posted on such spiky gyrations. I wouldn’t go so
far as to say there are deliberate price runs to clear stop orders one way or
the other… but it’s been suggested that such things truly happen in an
otherwise antics-free marketplace on Wall Street. (huge laugh!)
Trade To Win
Austin P
Austin Passamonte is a full-time professional trader who specializes in E-mini stock index futures, equity
options and commodity markets. Mr. Passamonte’s trading approach uses proprietary chart patterns found on an
intraday basis. Austin trades privately in the Finger Lakes region of New York.