Options expiries and the New York cut

[Fairman]

Options expiries and the New York cut

Every day at 10am New York, a batch of FX options expires. When a big strike sits near the current price, dealers who hedged those options tend to defend the level, and price gets pinned or oddly sticky around it.

It shows up on the chart as a stubborn range that refuses to break in the hours leading up to the cut, followed by a sudden release in the minutes after. Technical traders see a coil and expect a breakout. The actual breakout often starts just after the cut, not before it.

Information on large expiries is sometimes published by banks and data providers, usually listing strikes and notional amounts. Big ones, in the billions, deserve a mark on the chart.

For a short term trader, the practical use is modest but real. Fading the edges of a pinned range works better than chasing breaks while a large expiry is live, and the whole thing stops mattering the minute 10am passes.

It is worth keeping a note of how often a break comes within a quarter hour of the cut.

A useful rhythm: check the expiry list the evening before, mark any strike within 30 pips of the current price on the chart, and note the size. Anything above a billion deserves attention. Then watch whether price gravitates toward the strike in the final hour before the cut. When it does, the pinning story gets support. When it does not, the expiry was probably irrelevant that day.

Dealers hedge in ways that depend on where price is relative to the strike, which is why the behaviour near the cut can be strange. Buying and selling to stay neutral can mean fading moves toward the strike from either side, creating the sticky feel.

The effect fades fast. Once the cut passes, the reason for the pin is gone, and the next move often arrives within minutes. That makes the 10am hour one of the more interesting windows to study in detail.

Have large option strikes ever explained a day's strange behaviour in hindsight?

[FXS London Scalper]

Options expiries and the New York cut Every day at 10am New York, a batch of FX options expires.

Big strikes near the price at the 10am New York cut can make EURUSD unusually sticky in the early afternoon London time. Checking the expiry lists in the morning helps explain why a London move sometimes stalls at an odd level.

[Amanhasnoname]

Yes, a few times, and once it saved me from a bad habit. I spent most of one Thursday trying to short USD/JPY off what looked like a clean rejection, and price kept sitting in a tiny band no matter what the dollar did elsewhere. Later that evening I found a large strike listed right in the middle of that band. Ten minutes after the cut the pair moved forty pips in the direction I had been trying to trade, long after I had given up and taken three small losses.

Since then I keep a simple note each morning with any strike near price and its size, and I treat the hour before the cut as range-only time on that pair. I don't try to predict the release, I just stop treating the coil as a breakout setup.

In my own records the break has come shortly after the cut on more days than not when the strike was big and close, but on plenty of days nothing happens at all, so I take it as context rather than a signal.