All day traders should know this, the week leading into options expiration is an extremely tough period to trade. This is a time when the large institutional trading desks will play a lot games with the small retail options traders. Just look at the major stock indexes this week on any intra-day time frame, they have carved out a pattern that looks like the Wasatch Mountains. The intra-day swings can make any trader sea sick if they did not take a dose of Dramamine before the opening bell.
Yesterday, there was a solid head and shoulders top pattern which carved out perfectly on the 10 minute chart. The target for the topping pattern signaled a nice potential $1.50 decline, however, the pattern failed forty minutes after triggering. Today, another head and shoulder top formed on the intra-day chart signaling a nice $2.00 decline from the trigger to the target. This pattern also failed in just thirty minutes after the trade set up triggered. You see, knowing that this is options expiration week helps experienced day traders realize that the nice clean chart setups that usually play out like clockwork can and will usually fail. This is a week of game playing by the institutional trading desks.
Often, when you day trade after the first two hours of the day during options expiration you are essentially swimming with sharks. Thats right, you are swimming with great white sharks. The only difference is that the average day trader does not have a cage(knowledge) around him to protect him from the erratic intra-day swings. Some of the leading stocks that will be most volatile are the large technology stocks such as Apple Inc. (NASDAQ:AAPL), NetFlix Inc. (NASDAQ:NFLX), VMWare Inc. (NYSE:VMW), and Salesforce.com (NYSE:CRM). Just take a look at these stocks this week and you will easily see the volatile action in these names. It is best for day traders to take it slow during the week of options expiration as the action is usually trend-less. The week leading into options expiration is the real shark week for day traders.