This coming Friday is options expiration for the month of June. As many of you know, options expiration is a week that is filled with lots of game playing by the large institutions. This is a week where you will hear a lot of rumors, mostly untrue. You will also hear a lot of ridiculous upgrades and downgrades by many big Wall Street firms. Often, stocks that are sharply higher are susceptible to pullbacks. On the flip side, stocks that have been sold off sharply and in down-trends can often get bounces this week. This Friday is also a quadruple witching options expiration. That is when you have four different asset classes expiring. This is often a week of institutional game playing, especially in the popular stocks. So traders must be on their toes this week.
Last Thursday, the major stocks indexes plunged lower, with the Dow Jones Industrial Average (DIA) falling by more than 1800 points on the session. This likely caused a lot of fear in many of the small retail options traders that were holding call options and looking for more upside. This is why it is very important for options traders to not trade the near term expiration. It is always better to give yourself time on the clock and pay up a little for an option that expires later down the road. When you trade the near term contract that is expiring this week you are too vulnerable to institutional game playing.