> In simplest terms, a decline that should happen on Friday is delayed until Monday after an options expiration. On smaller floats this delay in price action could last for months. I never fully understood the mechanism behind it-- whether it was large options-writers manipulating the market or just the natural outcome of options-writing activity.
AFAIK this is because of gamma increasing as an option nears expiration, option dealers need to buy and sell more of the underlying as the changes in delta get larger due to the increased gamma. If there is a near-the-money option with large open interest, the underlying may pin to this strike price due to dealer hedging around this strike price.
Once the option series expires, underlying hedges can be unwound on the following Monday.
‘Option pinning’ as a search term will provide more info
AFAIK this is because of gamma increasing as an option nears expiration, option dealers need to buy and sell more of the underlying as the changes in delta get larger due to the increased gamma. If there is a near-the-money option with large open interest, the underlying may pin to this strike price due to dealer hedging around this strike price.
Once the option series expires, underlying hedges can be unwound on the following Monday.
‘Option pinning’ as a search term will provide more info