Stock Market Triple Witching, Max Pain Converge


Simpler Trading Team

Sep 09th 2022  .  3 min read

The stock market opened higher today with all three major indexes surging through mid-morning.

Will the stock market get to the close today and end on a winning week?

Simpler’s traders are watching the uptick today and expirations next Friday for potential new positions, and whether the rally will have some legs into next week.

Triple witching, max pain offer options

The witching hour is drawing close for traders and this may be a good time to find setups that fit into max pain theory.

Once each quarter, contract expirations hit the same day for stock options, index options, and index futures – triple witching. All this creates volume and volatility as options expire and premiums are affected. Triple witching happens four times a year on the third Friday of March, June, September, and December.

Max pain can occur when the underlying stock price aligns with an options strike price at the same time. This convergence of price brings together the most options trades – puts and calls – that could lead to the most financial losses, i.e. options expiring worthless at triple witching.

Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading, is watching for setups into next week where this alignment of options expirations and max pain may provide opportunities for traders.

He is particularly focused on Microsoft Corp. (MSFT), Occidental Petroleum Corp. (OXY), and the SPDR S&P 500 ETF Trust (SPY) for this witching-max pain setup. The key is following symmetrical stock chart patterns where past price action on the stock rallied higher, then dropped lower again, and there is a continuation of this symmetry.

With market uncertainty due to the next news event, Henry cautioned traders to follow this witching-max pain scenario closely. Anything can change in this market heading into expirations next Friday.

Stock market digests Fed plans, moves higher

The stock market appears to have digested and dismissed an onslaught of Federal Reserve (Fed) speakers on Thursday standing firm on plans to fight 40-year high inflation with continued raising of benchmark interest rates.

The S&P 500 and Nasdaq are leading the way to higher tallies across the board.

After making its way toward structure at $3,900 on Thursday, the E-mini S&P 500 futures (/ES) that tracks the S&P 500 index stayed above $3,980. The /ES then hit the top of the zone at $4,013. (Insights provided by Focused Trades.)

The S&P 500 rallied higher by .66% on Thursday to close at 4,006.18 points, and was up Friday morning as high as 4,061.04 mid-morning.

The E-mini Nasdaq-100 futures (NQ) powered higher Thursday as well, per Focused Trades, and continued to the point of control (POC) at $12,007. The technology-laden Nasdaq index, which has struggled all year, was higher mid-morning Friday at 12,082.92 points.

Simpler’s traders are watching the technology sector heading into the weekend. These include NVIDIA Corp. (NVDA), personal computer gaming company, and Shopify, Inc. (SHOP), a cloud-based commerce platform.

Traders are following these tickers for trade execution opportunities at key levels and focusing on moving averages to build possible setups.