Can Option Expiration Pivot The Market?

Chart of the day: Option Expiration days back to August 2010.

Many folks believe that the market pushes to certain strike prices with the largest open interest, also called max pain, into option expiration.  Once these options have expired worthless, the market is then free to go back on its merry course.  There is some truth to this, but for the most part, people are superstitious and believe that the market is out to get them.  Their options have always expired worthless so they blame it on the man.

Below is a chart of the last nine option expiration dates.  Because I’m generally bullish I will choose to believe that this option expiration will pivot the market back on its righteous course to higher prices.  Much to the dismay of those located in Gainsville, GA and Zerohedge headquarters.

If I look at this small sample objectively I can’t really see a pattern.  There are a few instances where OPEX marked the absolute high (Feb. 18, 2011) and a few that occurred close to the swing low.  Most seem fairly inconsequential.  I guess it doesn’t take much to create a Wall Street truism.


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