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Expiration Week: Will a Move in Motion Stay in Motion?


Trends may continue longer than you think.

Well, the buy-of-a-century, value-of-a-lifetime moment has clearly arrived. Or not - but we're clearly in a strong, intermediate-term pop right here and now.

On the assumption that it's a rally and not a new bull market (although by definition, the Dow and the S&P are probably up enough in percentage terms to already make it a bull market), does the fact that it's expiration week make it more or less likely that the love flowing?

Anecdotally, I'd say yes. A move already in motion on expiration week sure seems likely to stay in motion. Basically, options shorts can get trapped. Let's say you shorted some calls that were out of the money a week ago. Considerably out of the money. All of a sudden, 1 week and 1 fierce move later, they're now in the money.

What can you do? Well, you have to defend them, so it's likely you either bought stock or bought calls back, or both. Either way, you cause a little extra buying pressure on the margins.

But in reality, I only show a modest tendency for moves to stay in motion on expiration week, as opposed to any other week. What I mean is, all moves have the potential to keep trending longer and further than you think.

Expiration week doesn't appear exceptional in that regard. In fact, I show Tuesday of expiration week to be one of the least correlated days to the trend preceding it. And Wednesday of expiration week (today) isn't a particularly trend-friendly day, either.

That's the bad news. The good news is that Thursday and Friday of expiration week are the most powerful 2-day trending combo of the cycle. Which makes a bit of sense, as gamma only increases as time ticks away.

Today's a bit up in the air, but be careful fighting what looks like a pretty strong trend for the balance of the week.
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