Option Expiration Precedents SPY, ES_F

Friday is option expiration day and triple witching quarterly expiration.  Below are the last six option expiration days of this year chronologically with the most recent first.

There are a lot of opinions about how these events play out.  Having watched many of these events over the years there are several profitable patterns that play out on the Thursday and Friday going into the expiration.  One dominant pattern I’ve found that’s still tradable over the last couple years is the gap up imbalance play.  This is a very specific scenario.  The basic premise is that if there’s a large imbalance to buy in the morning OPGs on the friday expiration (see: NYSE Imbalances) and the $ES_F is gapping up pre-market, you sell into the demand.  How you do that is up to you.  I know a lot of guys like to offset the OPGs and go short the stocks with the biggest imbalances, or you can short $SPY or whatever.  By the time all the opening orders are filled there’s usually no one left to buy and the market auctions lower.  Opening prints like this often mark the high for the morning, if the not day or the week.

Notice the days that gapped up big in the charts below.  What do they have in common?

August 19, 2011:

July 15, 2011:

June 17, 2011:

 

May 20, 2011:

April 15, 2011

March 18, 2011:


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