some interesting comments in barrons on options thought you may be interested..
The essential argument of self-styled market sleuths is that as option expiration
nears, the Wall Street dealers and other institutions that have sold options to
the public try to steer the market in a way that causes the maximum number of
those options to expire worthless. In quarterly triple witchings, when stock
options and index futures and options all come due, the incentive to fine-tune
market movements is all the greater. No one suggests that the big guys make
or break bull markets, just that on an hour-to-hour and perhaps day-to-day
basis, the muscle-bound trading desks can sometimes have their way with the
indexes.
One thing a big options seller would
want to do is compress market
volatility, nudging indexes into a
relatively narrow band so that option
premiums collapse. Witness the first
part of last week, when after a solid
but unspectacular 82-point rise on the
Dow, the index Tuesday and
Wednesday lolled around for losses of
28 and 51 points. And, a true believer
might ask, could it possibly be
coincidence that the losses Tuesday
and Wednesday added up almost
exactly to Monday's gain, bringing the
index flat before the real expiration-related unwinding got going Thursday?
A burst of such automated unwinding activity near Thursday's close was in
fact what drove the market up to a level where it could hopscotch back and
forth across the 10,000 chalk line before finishing less than three points shy.
Another wave Friday morning was the impetus for the push to a morning high
of 10,085 before petering out to losses on the day. The action was closely
predicted before the open by such options watchers as Jerry Hegarty of Cape
Market Research, who further suspects that the tantalizing rallies to exactly
10,001 both Tuesday and Thursday represented the smart money playing
mind games with the public. |
