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Was Today the Fake-Out Day?

A piece of Wall Street lore says that early in the week of options-expiration there is a fake-out day. The big dogs push the market down, get everybody panicked and short, buy up the resulting cheap call options, and then make a fortune by running a short-squeeze on Friday.

And now that iBanks can borrow billions from the Fed, you might expect this sort of thing to be even more plausible. I studied expiration week a couple of years ago, but have not done so recently, so I don’t know how it has been behaving. If anybody has any ideas, please post in the comments.

I must say that as I was watching the XLF today, it looked like a gorilla was trying to hold it up rather than knock it down. The support at $23 held for a suspiciously long time, 3-4 hours.

This entry was posted on Tuesday, June 17th, 2008 at 6:18 pm and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Was Today the Fake-Out Day?”

  1. W T F Says:
    June 17th, 2008 at 6:48 pm

    Bespoke Investment Group published a brief study on the market’s performance the week of options expiration:

    http://bespokeinvest.typepad.com/bespoke/2008/06/option-expirati.html

    W T F

  2. admin Says:
    June 17th, 2008 at 7:12 pm

    W T F,

    Thanks! Just what I was looking for. I’ve heard Bespoke quoted a lot, but didn’t realize that they had a public website. I’ve added it to my bookmarks.

    Thanks again,
    Matt

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