Squawk Morning Briefing: Wrong About Expiration

There seems to be a reliable way to be wrong in whatever one anticipates from options expiration and that is to make a prediction. Whenever it looks likely that expiration will be subdued it is wild and whenever one expects movement instead it is calm. Of course, whenever one expects their predictions to be wrong they are right thereby preventing one from outsmarting this game the markets seem to be playing with us.

That being said, there seems to be a tendency to have more wild swings if there is a significant dislocation in price immediately prior to expiration. On Thursday, prices moved into a region they hadn’t seen recently and that may force traders to settle up on options contracts they expected would expire worthless. All of that buying and selling can whip things around, even if the net change in price isn’t significant. One reason to think that the net change might not be too great today is that drops of greater than 200 DJIA points like we saw on Thursday often need some time to digest unless we’re in a larger degree third wave than we are right now.

With the possibility of a small degree fourth wave triangle finishing up, one scenario for today is to get an early morning drop, and then some wild expiration swings within a larger degree fourth wave throughout the remainder of the day. Just keep in mind: our expectations are likely to be wrong.

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