Wall Street Pushes Price During Options Expiration

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Alex Partida

Nov 16th 2022  .  3 min read

Ahead of the cash session today, traders awaited more economic data set to hit the stock market.

An hour before the opening bell, the U.S. Commerce Department released retail sales data for October. The median forecast for the report was an increase of 1.2%, and the latest numbers beat expectations at 1.3% higher. This is generally bullish for the stock market as it shows an increase in consumer spending.

How much the average consumer spends can be a good gauge of the health of an economy or early signs of improvement.

After Wall Street digested the data, the slight uptick in retail sales proved to be a non-event for impacting the stock market. A significant reason to keep track of this data, regardless of the immediate reaction, is to understand that this information could be used by the Federal Open Market Committee (FOMC) to determine the benchmark interest rate hike in December. 

Sideways action ahead of Options Expiration (OpEX)

When the opening bell sounded today, price action across the indexes was once again non-directional.

A slight downtrend formed throughout the day, but the market was trading sideways for the more significant part of the cash session. This price action is not indicative of a reaction to the economic data released in the morning but instead to the fact that it is Options Expiration (OpEX) week.

Options Expiration occurs during the third week of each month. What happens during OpEX is that options are set to expire on the third Friday of every month. When an option is set to expire, this causes manipulation in the market as big money on Wall Street is getting out of old positions and rolling into new ones. One of the primary objectives by market makers is to force as many option contracts to expire worthless this week. 

The way that market makers accomplish their (OpEX) goal is by having a stagnant and non-directional market.

“In an OpEX week, you can expect a lot of chops, pops, drops, and a lot of premium crushing, said Chandler Horton, Director of Day Trading Strategies at Simpler Trading. Price action, as seen today, is standard OpEX action.

Price action holds near line in sand, indexes drop

Price action was notable today as the stock market did stay below the line in the sand of 4,000 on the S&P 500 futures. For any significant move higher, this psychological level will have to break.

On the downside, the vulnerability will remain the theme if the market continues to trade below the level.

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 closed down 0.79%, declining 31 points, while the Nasdaq closed down 1.51%, losing 171 points. The Dow Jones followed, closing down 0.11%, dropping 36 points.