Daily Commentary - Posted on Friday, November 18, 2011, 8:44 AM GMT +1

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Nov Friday 18

SPY going into OPEX on Weakness

Since Veterans Day * on Friday, November 11, the SPY – S&P 500 SPDR – has lost -3.60% week-to-date, is down -2.71% month-to-date, down -7.00% semiannually (since 7/1/2011), down -1.49% year-to-date, posted a 4-week (to be correct: 19 sessions) intraday low and closed at a fresh 2-week low, and has been down 1.50%+ two days in a row (during an otherwise bullish end-of-the year time frame).

With respect to the regularly bullish end-of-the-year time frame: Table I below shows the SPY‘s performance in the event the SPY closed lower 1.50%+ two days in a row in November or December of the year. A notably rare occurrence …


But OPEX (Option Expiration) on Friday, November 18, brings some additional risks that other trading days might not. Table II below shows the SPY‘s intraday performance (from the left to the right: with respect to a potential higher high, the intraday low, a potential lower low and on the close) in the event the SPY went into OPEX on a weak note, means being down week-to-date, month-to-date, and year-to-date on the session immediately preceding option expiration.

Especially eye-catching is the the fact that going into option expiration on a weak note won’t make it into the top list of favorable turnaround days (quite the opposite). Not only chances for posting a higher high are quite slim, but with a median change of -1.35% on the intraday low (thereof down 1.0%+ on the last 7 occurrences) and a median change of -0.60% on the close (up on 8, but closing lower on 15 occurrences) probabilities and odds are (statistically significant) tilt in favor of some additional downside at least during Friday’s session.

Conclusion(s): Taking into account the bullish end-of-the-year seasonality and the bearish intraday setup calling for some additional intraday downside on today’s option expiration, I wouldn’t be surprised to see major market indices trading significantly lower at least once during today’s session, but bouncing back during the second part of the session for a potential higher close (only 2 instances occurred in the OCT|NOV|DEC time frame, the SPY closed higher on both occurrences).

Successful trading,



* Veteran’s Day : November 11, closed (exchange holiday) all day 1918, 1921, 1934-1953, and celebrated on the fourth Monday of October between 1971 and 1977

Disclosure: No position in the securities mentioned in this post at time of writing.


Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).



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(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)


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