Market Experiences Volatile Swings Before Options Expiration

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Alex Partida

Jan 19th 2023  .  3 min read

Market Experiences Volatile Swings Before Options Expiration

Before the market opened, the release of Continuing and Initial Jobless Claims showed positive results as the data fell to 190,000, lower than the expected 215,000. Decreasing initial jobless claims indicate a robust labor market despite recent layoffs. As the labor market continues to improve, it remains a bright spot in the economy.

The initial reaction to this data was positive, lifting the indexes ahead of the market open. This strength continued as the market opened, and the indexes increased during the opening drive. The upward momentum carried straight to the 21-day exponential moving average (EMA) at 3,830.”

Market Retests The Mean, Gets Rejected

After a brief rally to the average, the market faced strong resistance at the 3,930 level. The indexes continued to decline gradually for the rest of the opening drive and into the early afternoon session. The market finally found support as the S&P 500 futures dropped to the psychological level of 3,900.

A slow recovery started as the market started to make higher lows off the critical 3,900 level. There was enough buying pressure to bring the market back to the day’s high. This volatile price action was likely due to Options Expiration (OPEX) and the upcoming Netflix earnings report.

As the last hour of trading began, sellers returned to the market, pushing the indexes back towards 3,900 before the close. This final-hour sell-off is likely due to traders taking profits ahead of a highly-anticipated earnings report.

Netflix Earnings

After the market closed, Netflix (NFLX) released its earnings report, setting the tone for technology stocks in the coming days. The stock had an expected move of 31 points and an implied volatility of over 220%. While earnings per share came in lower than expected at $0.12, streaming paid memberships exceeded expectations, rising to 230.75 million.

Overall, the reaction to the report was neutral, with Netflix stock remaining within the 31-point range, resulting in a loss of premium for those who had taken positions ahead of the report.

Opex and PCE to End The Week

As the market gears up for the release of Personal consumption expenditures (PCE) and University of Michigan (Umich) Consumer Sentiment Index data tomorrow, traders should also be aware of the monthly occurrence of Options Expiration (OpEX)

OpEX, which happens every third trading week of the month, can cause volatility and manipulation in the market as big institutions roll their positions into newly dated options contracts. Traders should exercise caution as OpEX can be a tricky day to navigate in the market. Keep an eye on these important data releases and be prepared for any potential market movements as the week comes to a close.

Indexes Close Red Into OPEX

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 futures closed down 0.79%, losing 31 points, while the Nasdaq futures closed down 0.91%, decreasing 99 points. The Dow Jones futures followed, closing down 0.76%, falling 252 points.