As you may know, on option expiration day each month in the stock market, volume and volatility have a tendency to swell. Very small moves in the stock indices may determine whether or not vast sums are won or lost in the options markets. Indeed, there is an overwhelmingly powerful motive for large traders to act to make their positions profitable at expiration. In this chapter, you will learn how market makers and large traders act in ways that create profit opportunity for savvy professionals.
Specifically, I will teach you how and when professionals have been taking positions to profit from the expiration shenanigans. The mechanical entry into the S&P 500 futures contract provided has made approximately $115,000 with 76% accuracy trading a single contract. I encourage you not to fear to trade the expirations, but to study them instead.
Predatory trading tactics at expiration
One tactic that can sometimes be seen on expiration day in stock indices is nicknamed the "Paris March" by top hedge fund traders. The nickname comes from the famous pictures of the Nazis marching by the Arc de Triomphe in Paris during WWII. In the photo, heavily armed bullies storm the city while the residents stand by defenselessly.
Similarly, in the stock market, major players will buy large positions in individual stock call options before expiration day. Traders are happy to sell these short-term options to the big players because the time decay is so extensively close to expiration that the sale looks like a good bet. However, the trick that follows can end up putting the seller out of business.
To carry out the Paris March, the large house that bought the calls buys the underlying stock(s) just an hour or so before expiration to force the calls into the money. Call options that were slightly out of the money suddenly go into the money and force the brokerage houses to scramble to buy stock to meet the exercises. This strategy creates a short-term buying surge and the buying looks to be coming from many sources—a powerful psychological driver in the market. The trading house profits on its long cash position and its calls or short puts at expiration. Naturally, the market has a tendency to go down the morning following expiration as the artificial demand for stocks disappears.
I have created a historical calendar for you of options expirations from 1981-1997 so that you may conduct your own research into expiration phenomena. But now, I will give you my best trading strategy for exploiting the upward bias of many pre-expiration periods.
Specifically, I will teach you how and when professionals have been taking positions to profit from the expiration shenanigans. The mechanical entry into the S&P 500 futures contract provided has made approximately $115,000 with 76% accuracy trading a single contract. I encourage you not to fear to trade the expirations, but to study them instead.
Predatory trading tactics at expiration
One tactic that can sometimes be seen on expiration day in stock indices is nicknamed the "Paris March" by top hedge fund traders. The nickname comes from the famous pictures of the Nazis marching by the Arc de Triomphe in Paris during WWII. In the photo, heavily armed bullies storm the city while the residents stand by defenselessly.
Similarly, in the stock market, major players will buy large positions in individual stock call options before expiration day. Traders are happy to sell these short-term options to the big players because the time decay is so extensively close to expiration that the sale looks like a good bet. However, the trick that follows can end up putting the seller out of business.
To carry out the Paris March, the large house that bought the calls buys the underlying stock(s) just an hour or so before expiration to force the calls into the money. Call options that were slightly out of the money suddenly go into the money and force the brokerage houses to scramble to buy stock to meet the exercises. This strategy creates a short-term buying surge and the buying looks to be coming from many sources—a powerful psychological driver in the market. The trading house profits on its long cash position and its calls or short puts at expiration. Naturally, the market has a tendency to go down the morning following expiration as the artificial demand for stocks disappears.
I have created a historical calendar for you of options expirations from 1981-1997 so that you may conduct your own research into expiration phenomena. But now, I will give you my best trading strategy for exploiting the upward bias of many pre-expiration periods.
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