Options Expiration Pushes Markets Higher


Alex Partida

Oct 21st 2022  .  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

Chandler Horton, Director of Day Trading Strategies at Simpler Trading, often speaks on two universal laws: structure and liquidity. These laws set the sentiment for the day and helped guide price action at the end of the week. 

The market built a supporting structure on the larger time frame created as the market has traded within an extensive range. A descending channel was created between 3,600 and 3,800 on the S&P 500 futures (/ES). Naturally, this pattern resulted in a supportive and restrictive structure. 

This supportive structure was tested by price before the opening bell, and as previously mentioned, the market never looked back. 

The subsequent universal law that Chandler talks about is liquidity. When the market opened, the liquidity was all above the current price. Chandler mentions that the price is either “moving towards or away from liquidity.” An analogy that helps visualize this effect is to imagine liquidity as a magnet. When you have two magnets, they will either attract or repel, which is precisely how price correlates with liquidity. 

Chandler Horton has an upcoming class that goes into further detail on how to implement the universal laws of the market. This class is pre-recorded and is flexible for any schedule. There is also an additional option to trade live with Chandler to see the universal laws in live action. To find more information on this opportunity, you can click 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.