OPEX brings many new risks to speculative traders that most other trading days do not.
Simply put it is 1 of 4 days of the year (actually 3 days of 12 as the effects of roll over tend to last for 3 days) when all the larger institutional traders Must come to the market and adjust their positions.
On every other trading day the institutional traders can chose to trade or not trade, however on roll over / OPEX this is not the case. As contracts will expire and cease to exist, they therefore must adjust, or "Roll" their contracts forward into new contract months.

In addition, knowing that the institutions will be present and active, there exists a group of traders who specifically take advantage of this dynamic. They are called Spreaders.
A spreader will take a position in both the back month and front month, (the outgoing and incoming contract) in order to scalp or play the spread between the two.
Spread trading requires a very specific skill set and is not for the average day trader or fain of heart.

The 3 days leading ip to OPEX day (3rd Friday), will act differently than most other trading days, and the reasons why have just been explained above. The influence of large institutional trading coupled with spread traders makes navigating the landscape more challenging than other trading days.

Keep in mind that for futures traders the effect of OPEX witll hit the market on the Tuesday  or Wednesday prior to the Friday Expiration. Even though the actual contracts will expire on the 3rd Friday of the month, the institutions must plan ahead for this, and that means the 2 sided effect of OPEX will be seen a few days earlier.

For more information on trading futures contract rollover see this post

Today is quadruple witching which means it is expiration of June stock index futures, options on stock index futures, options on stocks, and options on single stock futures.  Watch for choppy price action off the open and the remainder of the day should be good trade now that the M contracts have expired. 

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 Posted: June 19, 2009

Futures Market Update

Yhe S&P 500 market gave up some of its ground gained resulting from the FOMC announcement yesterday.  What was more interesting was the extreme indecisiveness and choppy price action in the market.  This type of market behavior is common for options expiration week Tuesdays and Wednesdays.  By Thursday of options expiration, the market usually starts to behave normally as the majority of traders have rebalanced their options and futures options in new contracts.  It almost appeared that the OPEX rebalancing was pushed out a day late due to the FOMC rate decision announcement.  Today is Quadruple Witching which is the day that contracts for stock index futures, stock index options, stock options and single stock futures all expire. 

Posted: Mar, 20 2009 @ 8:45 am