There is an $SPX options expiration every Mon, Wed and Fri, and traditional monthly options expire every 3rd Friday of the month. For example, this past Friday (08/19/2022) is an option expiration week. And here is what The Market Ear commented after this option expiration day:
We had a relatively big "gamma roll off" post this expiration, the "stabilizer" is gone. Don't forget that we also flip into short gamma should the market move lower. Absolute levels to the downside are not big at the moment, but demand for downside protection could "kick in" again, leading to vol becoming bid, dealers selling deltas to delta hedge and the entire short gamma dynamics play out again.
Option Expiration: A.M. or P.M.
Every option contract has a specific expiration date, and time. The time of expiration can be either in the morning (a.m.) or in the afternoon (p.m.).[1]
Options that expire at the close of the market are considered p.m. and options that expire the morning of the last trading day are a.m.
The vast majority of options on futures expire at the close of the market on the last trading day, but there are notable exceptions. Options with a.m. expiration are generally written on a future contract that has the same expiration date and time. Futures that are financially settled, meaning they settle to cash payments rather than physical commodities, are often settled using a.m. expiration.
Large Expiries
What are "large" expiries?[2]
Longer maturities tend to be listed on a quarterly (Mar/Jun/Sep/Dec) and yearly (Dec) basis only. For example, currently, only December expiries are listed beyond June 2023. Since these maturities have been around for longer, they accumulate a considerable open interest.Quarterly third Friday options also have an added benefit of $SPX futures expiring on the same date.
 |
| Table 1. Opex Week Performance By Month (Source: [4]) |
Why Expiration Time Is Important?
S&P 500 options began trading in mid-1983. The table above was compiled by Rob Hanna on year 2015. It goes back to 1984 and shows op-ex week performance broken down by month. Based on him:[4]
Furthermore, $SPX options make up 16% of the $SPX market cap in year 2021. As Sergei Perfiliev pointed out that:The seasonality of Op-ex weeks varies. However, it is in general is pretty bullish. March, April, October, and December it has been especially so. The seasonality of these weeks varies, with March being one of the strongest OpX weeks of the year.
Options gamma is one of the most significant structural flows within the equity markets. Delta-hedging and unwinding these positions can increase market activity around the expiration time.
To learn more about options gamma and delta-hedging, read [2] for more details.
Video 1. How to analyse Open interest (YouTube link)
No comments:
Post a Comment