Tue. Jan 25th, 2022

A key element of our service at EarningsBeats.com is tackling maximum monthly pain, which I define as the point at which the cash call premium fully offsets the cash cash premium. At the close of Tuesday, there was a TON of net premium for money. At SPY alone, I estimated the total to be approximately $ 925 million. This is just an ETF. Do you think market makers can have a small incentive to lower prices?

The SPY (ETF that tracks the S&P 500) was at 444.06 at the close on Tuesday when we discussed the maximum pain issues. The maximum pain level was 431.31. Since closing on Tuesday, check out the SPY chart:

The net cash-in-cash premium falls by $ 70 million for every dollar the SPY falls. So since Tuesday’s close, we’ve seen SPY fall $ 8 to the current low, reducing the net cash call premium by $ 560 million. Crazy!

I also want to mention that I did an analysis of the negotiation this year (2021). So far we have had 158 business days. 89 have been higher, 69 have been lower. In addition, I broken down the performance during the options expiration week. The following explains the performance of the S&P 500 this year during the options expiration week (Tuesday to Friday):

  • Tuesday: 2 Up, 6 Down, Annualized Return -57.03%
  • Wednesday: 3 up, 5 down, annualized return -54.28%
  • Thursday: 2 Up, 5 Down, Annualized Return -18.02%
  • Friday: 1 up, 6 down, annualized return -99.34%

If we eliminate the activity of the week of expiration of the options from Tuesday to Friday, the balance of the year has registered 81 days of rise and only 47 days of leave. Want to see how your business results increase? Follow the options expiration weeks or consider shortening stocks that are optional with tons of net cash call premium.

Let me explain it another way. The S&P 500 started the year at 3756.07. At the close on Wednesday, the S&P 500 was at 4400.27. This represents a net gain of 644.20 points. The following is a breakdown of points earned (lost) during the non-expiration week and the expiration week:

S&P 500, start of the year: 3756.07

Tuesday-Friday weekly options: -284.11

The rest of the days of the year: +928.31

S&P 500, closing August 18: 4400.27

How much clearer should this image be? All headlines and the falsity of fear serve one purpose and one purpose. Align the pockets of market makers. This month is a reduced conversation. Recently, it has been hyperinflation. Choose a topic each month. If taper talk really affected our markets significantly, the biggest response would have been to sell bonds and increase treasury yields. At the time of publishing the FOMC minutes yesterday, the ten-year cash yield stood at 1.30%. After the announcement, this morning we saw the yield drop from 1.26%. Traders are BUYING cash and sending lower returns. If you knew the Fed was about to reduce its bond buying program, wouldn’t you want to sell your bonds, increasing yields? That’s not what happened in the bond market. So why should taper talk have such a significant impact on actions? I’ll tell you why. Expiration of options.

The bottom line is that there are many short-term inefficiencies in the stock market and the expiration of monthly options is just one of them. But if you like to trade in the short term and don’t understand the impact of options expiration, you’re VERY behind the connoisseurs. Smart money always prevails.

Today I will announce the 10 equal weighted stocks in our securities portfolios. It’s our “DRAFT” portfolio! If you would like to see what stocks made up our list for the next 3 month period, you can sign up for a FREE 30TA 30 day trial. CLICK HERE to subscribe! Our flagship model portfolio has gained 217% since its inception on November 19, 2018. The benchmark S&P 500 has gained only 64% in comparison.

Happy trading!


Tom Bowley

About the author:
Tom Bowley is the lead market strategist for EarningsBeats.com, a company that provides an educational and research platform for investment professionals and individual investors. Tom writes a comprehensive daily market report (DMR), which provides guidance to EB.com members every day that the stock market is open. Tom has been providing technical expertise here at StockCharts.com since 2006 and also has a background in public accounting, combining a unique competency to approach the U.S. stock market. Learn more

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