How does Option Expiration affect the Forex market?
Option expiration is one of those things that a lot people struggle with. It is because they see them coming through the feeds, they see that there's an option expiration on certain currency pair at a certain price yet they do not know how to trade that. So how can you make pips from an option expiration?
The whole concept of option expiration is a complicated one. It is very difficult to predict whether an option expiration is going to push the market up or push the market down. Partly this is because you need to know various strike prices for certain options. Basically, only when you know whether the strike price is above or below the price you can expect whether or not traders are going to exercise those options and buy or sell that currency pair.
However, very often an option expiration of a certain price will act almost like a magnet. For example, if you got an option expiration of a billion on EUR/USD at 1.10 the price will tend to gravitate around 1.10. It might come up maybe beyond 1.10 a little bit but most likely it will eventually come back down. In a way it will just hover around option expiration price until the time of the cut.
Obviously, the whole answer to the question is complicated. It involves strike prices and calls and whether or not trades are going to be exercising those options. This kind of information, as I said, is very difficult to get hold of. But the simple way of trading this is understanding that really big expiry orders (I'm talking maybe over $600 million to a billion to $2 billion to $3 billion) tend to act like a magnet to the price. With this information on its own you can make some pips. It could help you to scout the pair range, trade that pair up or of that level.
To sum up, it is quite useful information but it is not really something to make a trading strategy out of.
That is how the option expiration affect the Forex market. Hopefully you can use that information, even if it is a tiny bit of an information, in order to make some pips.
At no time should anyone view the information presented anywhere on this website as advice, recommendation or proven. Everything reflected is merely opinion and may not be accurate. The purpose of the site is to express the opinions and views of Jarratt Davis. There is no intention to offer specific help, advice or suggestions to anyone reading any of the content posted here.
Editors’ Picks
AUD/USD remains under pressure above 0.6400
AUD/USD managed to regain some composure and rebounded markedly from Tuesday’s YTD lows in the sub-0.6400 region ahead of the release of the Australian labour market report on Thursday.
EUR/USD faces decent contention around 1.0600
The knee-jerk in the Greenback reignited some buying interest in the risk complex and pushed EUR/USD to three-day highs near 1.0680, rapidly leaving behind the recent yearly low around 1.0600.
Gold eases despite risk-off mood
Gold trades in a relatively tight range near $2,390 in the second half of the day on Wednesday. In the absence of high-tier data releases, investors keep a close eye on headlines surrounding the Iran-Israel conflict.
Ethereum trades around the $3,000 support following a surge in validator queue
Ethereum (ETH) continued a sideways movement on Wednesday as investors seemed to be waiting for an upward or downward price catalyst. Despite the price stagnancy, the ETH validator queue - possibly fueled by the DeFi restaking boom - rose sharply.
Australia unemployment rate expected to rise back to 3.9% in March as February boost fades
Australia will publish its monthly employment report first thing Thursday. The Australian Bureau of Statistics is expected to announce the country added measly 7.2K new positions in March after the outstanding 116.5K jobs created in February.
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