Why there are abnormal price movements exactly from 3pm onwards on the day of expiry in particular stocks? i.e. Some stocks start forming abnormal long green candles on intraday charts while some stocks start falling badly and form long red candle. And to my surprise, this all happens exactly after 3 pm. I have been seeing this trend for last 2 years at each expiry. Even today on 23Feb17, I have an example of PNB which started falling immediately as clock ticked 3 pm. (I have read somewhere its all about option pain theory, where market makers deliberately move the spot prices to desired strike price and eat up the all options premium which option buyers had put in. And because of the margins and bigger lots of option contracts, this results in more gains for market makers when compared to the money they pour in to move the spot prices. So, is this the only possible justification? or there could be some other possible causes of volatility during expiry?)
hello trader,
There is no fundamental reason to this.
The logical reason to this is
The volatility on expiry is created by automatic algorithms that fuel up the fear and greed among the retail market participants.
This process creates liquidity for algorithms and institutional investors to exit all their positions in profit.
While the novice traders, wanting to make a quick buck are caught up at the wrong side of the trend each time.
The market is manipulated to go up when it technically has to go down and vice versa.
The profitable thing for retail traders to do at this time is not to do anything and watch the algorithms fight against each other for survival.
Thank you portfolioplus911 for taking time to answer my question and providing your valuable insights. It is fascinating to know these things going on at the back end of market tickers.
However, I did not understand the part about auto algorithms. How these algorithms help institutional investors to exit their positions in profit? And which positions they have?..F&O or Cash positions?