The above 5 minute*chart(yesterday’s) shows the expiry period 10:00 to 10:10 am on the 3rd Friday of the month.This is when FTSE options expire. The market appears to have been kept down for the expiry and then jumps back up to continue its rise until midday. Some people say the expiry is fiddled to protect institutions that have risk at key levels-June 2005 was a case in point, to quote:
The expiry price was set at 5,138.7 points. However, the index traded at 5,091 points just after the expiry price was set and did not reach 5,100 points throughout the day. I remember well the FSA saying that the trades stand-yet we all knew the score. Many small traders were burnt-not literally.
Markets are Rigged, the Whole Thing is a Scam
This is a common belief, and if the markets are rigged then we must ensure we keep our risk to a minimum, and one way to do this is to avoid PIN risk. This is when we run our positions to expiry and hope the market favours us, or ‘pins‘ the losses to us when we are short(have sold) options. Some traders love expiry week and think they can read the market- there is little time value priced into options so you may find this suits you. The US has weekly options for those who like to get a bit sporty. If you like to buy cheap options this may be for you.(You may also like LEAPS Long Term Equity Anticipation Security far dated as far as 4 years away). You can trade any future month’s options. We ONLY trade FTSE.
In Summary:
Options expire,and if you run your trades to expiry you have to know it’s a bit of a lottery. Expiry weeks tend to be flat,until you trade them
* each’candlestick’ represents price action for 5 minutes
Options are complicated but profit and loss are simple concepts- at expiry my sold (short) options are usually ±5% OTM(out of the money)- eg if FTSE= 7000, I might be short puts at 6650 or short calls at 7300 during expiry week,and sleep relatively well. ITM options- example at expiry FTSE= 7000 and I have sold a 7100 put-I would take a loss of 100 minus premium taken in. Just naked selling, however is described as picking up pennies in front of a moving steamroller.
The choices with options are staggering and knowing something of those choices,that is the key. This sets options an entire universe apart from the dreary process of buying shares,or the nerve jangling torture of forex or futures trading. Feel free to challenge that proposition!
UK equity options have variable expiries,and US optionsalso vary-some are settled on the Saturday. FTSE options are simple and it’s easy to remember when stuff happens- it took me about4 years of playing around with equity options to figure out that trading is a process of eliminating as much rubbish as you can. And who hasn’t invested in a stock to watch it plummet the next day? We can fix that.