Market Performance Before and During Options Expiration Week

By Duru

May 21, 2006


I generated an analysis to try to answer finally, once and for all, whether the market has an upward bias during options expiration, especially when it was down the week before.

The highlights here that I see:

  1. If the market is trending, then the options expiry will tend to move with the trend (I juxtaposed my own knowledge of whether the market was trending at the time).
  2. Since 2000, there is only a slightly better than 50/50 chance that the options expiry week will close in the same direction as the close the week before.
  3. Since 2000, there has been a slight tendency for the S&P to be up by the end of options expiry. The Nazz is just as likely to close up as it is to close down at the end of options expiry.

Note that a more complete study would compare how other weeks perform and would also attempt to condition any conclusions on the prevailing trends in the market over a variety of time frames. So, treat this as a first and simple look into what the data has to say. Look closely - as you should find many interesting insights when you look at particular years! (Click here for the analysis).

--- Duru

(Data notes: Performance for the week calculated from the close of one Friday to the next. Good Friday holidays treated as a market day with the previous day's closing prices. Same treatment for the National Day of Mourning for Reagan's Memorial on June 11, 2004. Data thrown out for September, 2001 due to the terrorist attacks the week of options expiration for that month).

Legend: "Directions" gives the direction of the market in the prior week and the following week. For example, "down-up" means the market was down the week before expiration and up the week of expiration. You will have to go back to the original spreadsheet to see the magnitude of the moves. The point of this analysis was not to measure volatility or the strength of the moves.



DrDuru, 2006