Friday, August 20, 2004

Something for short-term traders to keep in mind is the market's tendency to show declines the day after an option expiration.  Today being expiration, it would apply to Monday's trading. The bias for the day after has been negative for at least the past 10 years, but it has become very prounounced lately.  Since the beginning of 2003, there have been 19 expirations.  The Monday following has been positive only 6 times (32% of the time), and the average return is a rather large minus 0.7%.  The average negative day has shown an average return more than twice as large as the average positive day, so there appears to be a definite negative skew there. One other note regarding this is that when expiration week showed a rally (as it has this week), then the day following expiry was higher only 25% of the time, and the average return was nearly -1%. There are obviously a number of things that could happen over the weekend to shift the traditional pattern, but I do think it's notable enough to mention that there has historically been quite a negative tone to Monday's trading.  Heading into the weekend, that may be something to factor into your risk profile. 11:31:13 AM