Opex questions for the options traders

[sinner]

Hi guys,

Let's say I've built a nice simple quant model which analyses the weekly returns of an instrument leading up to a monthly OpEx and monthly returns of the instrument leading up to a yearly OpEx.

After scanning a variety of instruments I've come up with a bunch that will consistently run up or down into their respective OpEx.

Assuming this represents an edge (which I'm not so sure of yet), can any options traders help me understand what might be happening for consistent run ups or downs to occur as positions are rolled/expire?

 

[cutz]

can any options traders help me understand what might be happening for consistent run ups or downs to occur as positions are rolled/expire?

Not sure how to identify who holds what but my understanding is as we head into expiry there will an imbalance between ITM puts and calls, obviously as the market rallies over the weeks into expiry an excess of ITM calls will accumulate, depending on who holds what the selling off of these calls into expiry will force the MM's to hedge by selling the underlying, this creates a down force. Opposite with puts during a downturn.

Sorry rushed reply and based on hearsay, may be correct/may not, but I hope it makes sense.

 

[sinner]

Not sure how to identify who holds what but my understanding is as we head into expiry there will an imbalance between ITM puts and calls, obviously as the market rallies over the weeks into expiry an excess of ITM calls will accumulate, depending on who holds what the selling off of these calls into expiry will force the MM's to hedge by selling the underlying, this creates a down force. Opposite with puts during a downturn.

Sorry rushed reply and based on hearsay, may be correct/may not, but I hope it makes sense.

It helps, thanks! The idea I am picturing in my head from your description is if performance is unusually large upwards leading to OpEx, this probably means some reversal into the OpEx week (for those that consistently reverse into OpEx week anyway).

 

[cutz]

It helps, thanks! The idea I am picturing in my head from your description is if performance is unusually large upwards leading to OpEx, this probably means some reversal into the OpEx week (for those that consistently reverse into OpEx week anyway).

Yep,

Looking at the front month XJO options coming into expiry, there seems to be a lot of Put open interest between the strikes of 3800-4200, so my expectation is that the market may be pushed back up as we approach XJO expiry. Problem in my case is I can't really wait for this to occur because if it doesn't. (gamma)

 

[wayneL]

Assuming this represents an edge (which I'm not so sure of yet), can any options traders help me understand what might be happening for consistent run ups or downs to occur as positions are rolled/expire?

If I understand you correctly (pinning to the strike?), it is market makers hedging delta, the phenomena becoming more marked as gamma increases as expiry gets closer.