**Founders Option Special: Get Your Popcorn
Stock Option Expiration Excitement
Which is why to some extent, this stock rally all week has been likely in part a buy the rumor, sell the news event. Get your popcorn
ZeroHedge put out a detailed post on stock options expiry today. Here is our summary having experience with the option side of things. If you are too busy to read the whole thing, this summary should be helpful. You should be better informed as this unfolds one way or another
Bottom line: Someone Gets Hurt Soon
Dealer Gamma is expiring today.
If you are a speculator and know dealer gamma is expiring and you also have a directional opinion, you traditionally position yourself in the direction of the options with the most open interest (notional and as a % of total dealer gamma) expiring.
Those speculators right now are looking at calls above in single stock options. But dealers aren’t idiots. Ultimately the speculators and the dealers will line up the same way as each other and if we go higher, it will be the FOMO crowd that buys strength. What happens from there is the actual pain point.
Players:
Speculators: who are largely betting on a move higher post expiry
Dealers: who lose Gamma in both directions, but are first to cover risk and see what speculators are doing
FOMO Retail/CTAs: who are moths to a flame, but sometimes make money
Scenario Specualtors want: Spike higher. Then either meltup or violent reversal depending on how heavily they take profits
Summary for Non-Option Folks:
(VBL was an options dealer)
Dealers are long options.
Dealers tend to keep a market in ranges due to their dynamic gamma hedging
A good portion of their gamma expires today