By Nicholas Santiago on February 17th, 2010 12:46pm Eastern Time
This week is a holiday shortened trading week and also options expiration on Friday February 19th. During this week it is common to see a lot of whips in the market ahead of options expiration on Friday. Often the stocks that have traded higher in the beginning of the week will reverse lower by the end of the week.
Generally, the small contract trader or better known as the 'retail trader' will chase the popular strike price and get shaken out of their position by options expiration. Our suspicion is that the institutional money has computer programs that track the small contracts being purchased on calls or puts as they chase the popular strike price. Once the institutional money has a clear read on a particular stock that is being bought by the little guy the institutional money will move the market away from that strike price.
Yesterday many popular stocks such as Potash Corp Sask Inc (NYSE:POT), U.S. Steel Corp(NYSE:X), and Exxon Mobile Corp(NYSE:XOM) were both trading sharply higher and today they have sold off from their gap higher open. This type of action occurs notoriously during the week of options expiration.
Use caution during the week of options expiration. It is my belief that the institutional money can move the market to where they need it to be for a few days. Therefore, remain short term into Friday as the market may get bumpy and the moves can be very tricky.
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