Ahh, the glorious stock market witching hour.
Once a month, the options of stocks expire and today happens to be the last one of a very yucky year. How are stocks going to fare today? Without meaning to take the chickenfeed way out, they could either continue their slamming to the ground downslide or briefly take a flyer because of the holidays.
I am inclined to think that the stock market will go up on Friday only because it has been oversold so deeply the last few weeks. My own take on things is that yes, things are bad and will get worse before they get better but as I generally harp on, if you are buying a fundamentally sound company that has good fundamentals, good income stream and still is making a profit after paying all of its expenses – what is wrong with it?
It is very fashionable to downgrade and blast all sorts of companies now but one of the truths this time of the year is that some fund managers pick up companies with great fundamentals after they or analysts “downgrade them” and it seems then at the end of the year portfolio that they were geniuses for buying the great companies at lower prices.
I am not sure how true this blatant manipulation is but if you are in stocks for the long haul and pursuing option investing and strategies I suggest you watch what you are buying and be prepared to be flexible.
One of the interesting effects of options expiration days like Friday is that people who are shorting stocks have to cover their positions. Short sellers are investors who sell shares of stock they don’t own and hope the shares drop in value so when they buy them back at the lower price, they actually make money on the difference in the short.
Market makers know this and sometimes they squeeze the short players to make money off of them.
The flip side is that we can see a lot of “end of the world” selling to clean out portfolios and then before Christmas see some of the stocks pop back up.
It has happened in the past and can happen again.
In any case, brace yourself and if you are in an all cash position, good for you. You can enjoy the show from the sidelines!
Have a great weekend everybody and let’s see how the market goes today.
Kim Isaac Greenblatt
Witching Hour Options Expiration Friday
Tags: Business, options, stock market
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