Posted on August 20, 2017 2:22 am

Options Expiration Dates and Market Psychology

Market psychology is a cornerstone of how markets operate. Whether that’s psychology that the ‘big money’ has trained retail to follow or whether it is the psychology of traders themselves. Options expiration dates are a great way to show what I mean.

Trading is a lot like gambling; I’ve already gone over the differences of investing vs. trading in previous blog posts, and it’s a subject I’m very likely to touch on again. It’s very important.

August 18th, this past Friday, was the standard expiration for August monthly options. While many people were still holding onto options expiring that day (something you should NOT be doing because of the impact of the options greek ‘theta‘ as the primary reason), there was some hope that the markets would rally and those option holders might be able to regain some of the profits they had made. That or they were hoping their losing positions would gain in value.

So what happened on options expiration day this past Friday?

Let’s take a look at the major indices.

August 18th - Major Indices

Ok, so I’ve labelled the three big swings that occurred that day. Here’s what the market makers and the big money were trying to convince traders of; and apparently succeeded in doing so based on a number of options that were left to expire worthless.

Let’s go by the numbers I added. 

  1. The market takes a quick dive in the morning. Those still holding their positions expiring that day are just like f*ck. No point in selling these things now, they’ve already dropped so much and now they’ve dropped more. Let me wait and see what happens.
  2. The market appears to go into rally mode. Our options holders here are hit with a burst of hope as their Profits increase from red or slightly green to more profit or less losses. “YES! I knew I should have waited this out”. Keep in mind that the entire time this move up was going on, theta (or time decay) continued to viciously eat at their positions.
  3. F*ck. Those increases in prices of their options start to fade quick. Not only because of the swing downward in stocks, but also because by now theta is eating away at their value like an obese family at a buffet. Not only did they miss their time to sell days before with much more profit, but they’ve also missed their time to sell today. Unless they were up big, most of the options here are evaporating in value as time decay rips into them.


Now some might say this is a coincidence.

I’m here to tell you that it isn’t. This happens on most standard option expiration dates.

Options Expiration Date vs. Indices July 21st


Ok, so that last one is a chart of the monthly option expiration date from last month (July 21st, 2017). There is a 4th move in this one, but because of how late in the day it was, it’s essentially irrelevant. By then theta had killed the value of the options that were expiring that day.

So What’s The Point?

The point, well my point anyway, is that you should not be holding your options up until expiry unless you plan on exercising or rolling them. Even then though, you’re far better off just doing that a week or two before the expiry before (2 weeks is what I recommend typically) so you can hold onto more of the value of those options. Of if you were wrong and the position is going in the totally wrong way, sell them early.

Option expiration dates are almost always rigged in a similar manner to the two above…check the charts if you don’t believe me.

Holding onto a position that’s expiring in a few days is almost always an exercise in futility. Don’t forget, the house always wins…unless you don’t let it.


That’s all for now; I’l be back with my post on solar eclipses, moon cycles and other weird stuff most traders disregard as total nonsense (but shouldn’t) soon.



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