Thursday, April 15, 2010
Options Expiration Effects
The skew in the volume of puts and calls traded tells me we will have some volatility in the remaining time till expiration. I am betting that it will be to the downside, since we're already so stretched to the upside. It looks like this market will never go down, and usually when that happens, we get a short term pullback. But even if we selloff, I bet the dip will be bought voraciously. GOOG and BAC earnings are set for after the market closes. I will have to guess that they will beat estimates. Surprise! I can't help but think that a lot of this buying is in anticipation of overall blockbuster earnings and fund managers are determined to ride it out during earnings season and sell before all the others do. I think we can have a selling stampede sometime before this month is over.
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2 comments:
I hope you are right but I have found that the more bullish people are heading into expiration, the less likely we get a turn before expiration and the more likely the turn happens immediately after.
The reason I think it works is that if the atmosphere is bullish people are more likely to roll bullish bets and less likely to roll bearish bets. That would have the effect of propping up the market.
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