Cry Havoc! And slip the dogs of war". . .

-Julius Caesar Act 3, scene 1,
270, 275

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Big quadruple option expiration today –  expect big swings. Note that this comes in the same months as the no shorting rule expired.

"The U.S. stock market’s wildest swings since 1929 may get even bigger as almost 80 million options expire today.

Owners of the contracts on stocks, indexes and exchange- traded funds have until today’s close to take advantage of the rights granted by the calls and puts they own. Investors are preparing for the possibility that market makers will boost volatility by buying and selling stock to hedge the risk of the option trades they have facilitated, according to Scott Nations, president of Fortress Trading Inc…

About a quarter of the approximately 337 million existing options expire today, according to Chicago-based Options Clearing Corp., which settles all trading of exchange-listed contracts and is the world’s largest derivatives clearinghouse."

It may be wild today!

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Source:
Stock Gyrations May Roil Trading as 80 Million Options Expire
Jeff Kearns
Bloomberg, Oct. 17  2008
http://www.bloomberg.com/apps/news?pid=20601213&sid=aJLOKIXVMfrc&

Category: Markets, Options

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

14 Responses to “Look For Expiry Driven Volatility Today”

  1. Old Ari says:

    You haven’t got a poetic soul, it’s “Let slip ..etc.

  2. Concerned Citizen says:

    yes, and you suggest the 2x QLD…are you crazy? :-)

  3. Michael M says:

    Why is nobody talking about the huge moves in currencies vs EUR and USD: Estonia, Korea, Sweden, Norway, Hungary, South Africa, Mexico and Turkey. Also a number of currencies have spiked briefly during the last three days – looks very much like their central banks stepped in. Add to that the freezing of funds in one midsize Russian bank yesterday and it’s starting to look like money is moving out of emerging market banks and into western markets and local cash. This could be a huge story next week.

  4. karen says:

    an options calender some may like to bookmark:

    http://www.optionsclearing.com/publications/xcal/xcal2008.pdf

  5. Vermont Trader says:

    What are we going to do when the markets calm down?

    I think the last 2 months have probably ruined me as a trader.

    I’m actually getting used to these massive intra day moves. That tells me they are probably about to stop.

    I’ve switched my strategy from selling rallies to buying dips and I am holding a 50% long portfolio overnight now which is something I haven’t done in years..

  6. mhm says:

    Michael, the unlimited dollar swap lines opened to other central banks by the US were designed to damp the run to the dollar from weaker currencies. It would be much worse if a shortage of dollars happened… The emphasis is on “damp”, local currency crises might still happen.

  7. karen says:

    Barry, I was wondering if you were going to correct that… upstanding way you did it, too. :) I imagine your partner was rolling his eyes.

  8. I-Man says:

    @Karen:

    Thanks for that link… pretty cool.

    Anyone have a take on what we’ll see more of from market maker hedging today, buying or selling?

    I dont know where to find the actual hard data, but I’d imagine that given the VIX of late there’s a wide slant towards the number of open interest on the put side vs the call side.

    Anyone here an expert on this?

    It always seemed to me that back in the days when I would buy up OTM calls like lottery tickets that we’d often get trapped just below the ITM strike at expiration and our calls would expire worthless.

    Anyone thinking alot of spec put buyers are in for the same today?

  9. leftback says:

    My guess is that most of the people who bought OTM puts a while back have cashed them in already during one of the waterfall declines. Who knows, we may end up looking at people chasing their OTM calls into the close. Buying puts today seems kind of dumb, no?

    VXO puts might be a good trade from here !! It’s hard to imagine we will ever see this kind of vol again. But who knows? Mark Hoffer and SPECTRE are still waiting on their SPY 50 puts….

    I will bet Bruce a burger that Treasuries sell off next week. 4.15% on the 10-year, you heard it here first.

  10. batmando says:

    @ leftback
    “Treasuries sell off next week. 4.15% on the 10-year, you heard it here first”
    Are you trading on that? how?

  11. Crank Yankee says:

    Apparently right around 9000 on the DOW is the magic number.

    It will be interesting to see what happens next week once all the “magic” disappears.

  12. leftback says:

    @ bat: The lazy way is to buy DXKSX (inverse the 10-year x 2.5) or RYJUX (inverse the 30-year). Increased supply seems likely to drive up yields even if investors don’t move their money into stocks, which I think they will. I think there is probably a tradeable instrument that you can short as well, am looking for you.

  13. batmando says:

    lb -
    “Increased supply seems likely to drive up yields even if investors don’t move their money into stocks”
    Increased supply was what I had been contemplating in considering shorting.
    Thanks for DXSKX and RYJUX.
    Schwab reports DXKSX 7.83% expense ratio while RYJUX is 1.4%! Plus the issue of potential early redemption penalty of mutual funds
    As an alternative, PST?
    Last 30 days:
    PST ^9.5%
    DXSKX ^11.0%
    RYJUX ^11.6%

  14. dano says:

    pretty sedate day. made a few bucks on covered calls on PFE. not much, but still nice!