Options Expiration Pushes Markets Higher


Joseph Rangel

3 min read

Options Expiration Pushes Markets Higher

There’s been one important factor to consider this week and, more importantly, today: options expiration. This day occurs every third Friday of the month. On this day, monthly option contracts expire, sometimes causing volatility in the market. 

During this week of options expirations, it seems like market makers have one job: to make as many strike prices expire worthless as possible. 

This week, an important question for traders is to ask themselves what side of the option chain has been seeing more success. When you identify a side of the market that has seen more success, you can assume the market makers will have to manipulate the greedy bag holders.

Buyers started early today

Today, when the opening bell sounded, the market took no time starting to take away any downside continuation. Price action quickly reversed the downside progress made over the previous two sessions. Market makers knew that to take out the massive amounts of put holders, they’d have to take the market higher towards the psychological level of 3700 and 3750.

Universal laws of the market

Experienced traders often speak on two universal laws of the market: structure and liquidity. These laws set the sentiment for the day and guide price action at the end of the week.

The market builds a supporting structure on the larger time frame as it trades within an extensive range. A descending channel can be created, resulting in a supportive and restrictive structure.

This supportive structure is often tested by price before the opening bell, and if the market holds up, it can result in a positive trading day.

Another universal law that experienced traders talk about is liquidity. When the market opens, liquidity is often all above the current price. Traders understand that the price is either “moving towards or away from liquidity.” Liquidity can be visualized as a magnet, and as two magnets can either attract or repel each other, the same applies to price and liquidity.

To learn more about implementing these universal laws of the market, traders can attend pre-recorded classes or trade live with experienced traders to see the universal laws in action. Check out our live options trading room here.

Indexes rally into the close

The day ended by finding support at liquidity and going higher. The market has nearly pushed to the top of its range at 3,800. This level is a massive level heading into next week. 

If the market can hold liquidity for the first time this year, there could potentially be a good upside move in the cards. Otherwise, this could be another test of the top of the range in the market. All eyes are on the psychological level of 3,800 and the 21-day Simple Moving Average.

The market closes the week strong.

The Nasdaq and the S&P 500 were positive to close the session. The S&P 500 closed up 1.03%, gaining 38 points, while the Nasdaq closed up 0.73%, a gain of 77 points. The Dow followed, closing up 1.05%, adding 315 points.