options expiration day is near, options favors short side in S&P500 index.
As we head into option expiration on Friday, it is interesting to observe what the implied “attraction” price for certain underlying securities is. For this particular example I have picked the (in) famous SPY. Calculating the put/call equilibrium, indicates that the local minimum for the SPY is at $80, compared with a recent print of the SPY itself around $84. The “equilibrium” price is the point at which the call and put payoffs are the smallest, or net each other out the most.
While there is no direct causal relationship, trading desks and other prolific index hedgers, which may be underwater on option contracts if the SPY (and S&P500 by implication) closes at current levels around 84, may find an incentive to sell indices into trading action over the next two days, thus minimizing the expiration payout pain.
The first chart below demonstrates the SPY local minimum, while the second chart is a comparison of the change in the underlying price compared to the change in the implied equilibrium price based on option trading action.
source: Zero Hedge
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