So You Want to Know About - The US OPEX
An Explosive Trillion Dollar Day
Friday, February 21, 2025, marked another Equity Options Expiry (OPEX) day in the U.S., a monthly ritual where traders, market makers, and big institutions square off their positions in a flurry of volatility, volume, and voodoo market magic. If you’re new to the game, OPEX is when equity and index options contracts expire, typically on the third Friday of each month. It’s estimated that $1.7 trillion in SPX/SPY options expired on Friday, more than Australia’s entire GDP.
It’s a day that can make or break a trader’s week, and last Friday was no exception, with the SPX falling 100pts, or nearly 2% from the day highs. In other words, it’s a day worth trading.
Let’s dive into what OPEX is, how the markets reacted on February 21, and some historical nuggets that might give you an edge next time the calendar rolls around.
What Is OPEX, Anyway?
Equity Options Expiry, or OPEX for short, is the day when options contracts—those leveraged bets on stocks and indices like the S&P 500 (SPX)—reach their endgame. You’ve got your calls (betting on a rise) and puts (betting on a fall), and on OPEX, they either get exercised, expire worthless, or roll into the next cycle. In the U.S., this happens on the third Friday of every month for monthly options, though weekly options sprinkle extra expiry dates throughout. February 21, 2025, was a big one—index options tied to the SPX and SPY (the S&P 500 ETF) expired at the open, unleashing a tidal wave of activity.
Why does this matter? Because options aren’t just side bets; they drive stock prices through a phenomenon called "gamma." Market makers, who sell these options, hedge their exposure by buying or selling the underlying stocks. As expiry nears, their hedging ramps up, amplifying price swings. Posts on X from that day pegged the notional open interest tied to SPX and SPY options at over $1.7 trillion—a colossal figure that “resets” dealer gamma exposure, often sparking large market moves.
Historically, OPEX days see elevated volume—sometimes 20-30% above average—as positions unwind. The S&P 500 often dances around key levels as options "pin" stocks to strike prices with heavy open interest.
Past February OPEXs offer a mixed bag: in 2021, the SPX dropped 4 days straight through the 19th, shedding over 2%; in 2023, it fell both before and after the release, and in 2024 it chopped sideways.
Historical Tidbits: OPEX Through the Ages
OPEX isn’t just a one-day story—it’s a recurring saga with some wild chapters. Here’s a quick rundown of what history tells us:
The Third-Friday Effect: Research from QuantPedia shows large-cap stocks with liquid options average higher weekly returns during OPEX weeks—think 0.5% or more—thanks to market makers unwinding short hedges. That’s a 6% annualized edge if you play it 12 times a year!
Triple Witching Chaos: This is an entire article in itself, but four times a year (March, June, September, December), OPEX aligns with stock index futures, options, and single-stock futures expiry—a "Triple (or even Quadruple) Witching" day.
Pin Risk Madness: Ever hear of "pinning"? Stocks can glue themselves to big strike prices as expiry nears. On February 19, 2021, Tesla pinned near $700, with $2 billion in open interest at that strike. Traders who saw it coming scalped easy profits; those who didn’t got smoked.
Volatility Spikes: The VIX, Wall Street’s fear gauge, often perks up around OPEX. This time was no different, with the VIX spiking 16% on Friday as markets tanked.
What’s the Edge for Retail Traders?
So, how do you trade OPEX? It’s tricky—volatility cuts both ways. But there are a few clues the we look out for:
Keep an Eye on the Aussie: The 2 largest OPEX falls coincide with large AUS200 futures falls, with the global risk off sentiment occurring 12 hours before the New York open.
Watch the Open: Index options expire at 9:30 AM EST. That first hour can see large swings as dealers rebalance. But here’s the thing, 88% of days don’t retrace the early moves.
Range Game is Strong: Average day range is 67pts, with plenty of 100+ range day opportunities historically.
Into the Close: If it looks like market are going to finish significantly higher, or lower for the day, it’s worthwhile holding your positions to the death. The vast majority of occurrences have closed within single digits of their lows / highs.
So there it is. OPEX. Another volatile event to mark in your calendar if you’re an active trader.
As always, keen to hear any other perspectives / strategies from you guys. If you find this stuff interesting and would find value integrating data and statistics into your trading plan on a daily basis, please consider signing up for TGM here.
Cheers
Marto
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