Every trader in the world should know that this coming Friday is options expiration. This is a time when the major stock indexes and the popular stocks can be very volatile. Often, the institutional traders will look to push stocks in the opposite direction of the bet that the small retail options trader has made. The institutional traders simply read the imbalances in the market and push stocks in the other direction. For example, if the small retail options traders has been buying puts on the S&P 500 Index and that becomes an obvious imbalance the large institutional traders will generally push the market the other way. When this happens the small retail options traders will usually find that there option is out of the money and will often expire worthless by the Friday expiration. The one simple rule is to not buy the near term expiring contract, always pay a little extra and buy a little time. Remember, if you are a retail options trader there is reason why the options are cheap.
The large institutional traders know that the small retail options trader will rarely exercise an option. Usually, the small retail options trader is going to play for a gain in the premium paid for the option. Premiums will fluctuate like a stock depending on supply and demand. The large institutional traders know this and have enough cash on hand this week to push a stock in their favor. This is why I call this the real shark week. Some leading stocks that are usually very volatile during the trading week leading into options expiration Friday are First Solar Inc (NASDAQ:FSLR), Netflix Inc (NASDAQ:NFLX), Green Mountain Coffee Roasters Inc (NASDAQ:GMCR), and Amazon.com, Inc (NASDAQ:AMZN) just to name a few.