Can options expiration affect the share price?

S

stockmarketbeginner

I'm looking at a stock that went up rapidly. As a consequence of the rapid price rise, the stock has many surprise deep-in-the-money calls (they started out far out of the money) that are going to expire tomorrow.

Can the expiration of these options affect the share price of the stock? I'm not sure what happens to the price of a stock when "lottery ticket" options actually come true and then it is expiration day and the obligations have to get settled.
 
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You ask a fair question, around which much has been written.
The basic set-up you describe is (in effect) a short squeeze, but from the short option to the long equity-holder. If we assume any sort of call-to-equity 'balance' around a regularized range of prices, and then a run-up into a range where there had been not-so-much trading, the resulting surge in demand for liquidity and for long/ownership resolution will certainly be a lead for market prices to be bid up.

At the same time, though: watch the volume transacted. If you were a long-equity holder, and prices shot up, would you not ask, "Is this it? Is this 'time-to-sell'?" and then liquidate your position to those pained call-holders?

[Thus, there will still *eventually* be a re-balancing -- but the slower that re-balance (should the Ask climb up in hoped-for reluctance), the greater will be the climb.]

I just googled, and got a crap-ton-load:
https://duckduckgo.com/?q=option+expiration+effect+on+stock+price&t=ffsb&ia=web
and a [very] quick scan suggests some solid content.

Have fun!
 
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In short, yes, but not the deep ITM options. The writer will have hedged in anticipation of delivery of deep ITM, so it won't filter through.

Here's a better picture of options affecting share price. HSY from 3 days ago:
hsy.JPG
 
But a big enough tail wagging hard enough can indeed wag the dog.

To extend the analogy to options pricing, there's a lot more involved than just the underlying. A sharp enough move in the VIX may force big players to adjust their positions, which can and often do involve participation in the underlying.

So yes, under certain conditions, the tail can wag the dog.
 
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I would surmise that conversions and reversals affect share price because stock may be bought or sold, depending on which side the MM is on but I would guess that the effect is minimal. Yes, no, maybe?
 
lindq said:
But a big enough tail wagging hard enough can indeed wag the dog.

To extend the analogy to options pricing, there's a lot more involved than just the underlying. A sharp enough move in the VIX may force big players to adjust their positions, which can and often do involve participation in the underlying.

So yes, under certain conditions, the tail can wag the dog.
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Thanks. That is an interesting point about the VIX.
 
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