Professional option traders will often hedge their option positions by buying or selling the stocks of their options. Therefore, when options are about to expire, hedges that are no longer needed for worthless options are exited and new hedges are created to cover in the money options that are about to expire. This heightened buying and selling causes volatility to increase on the day options expire.

On the Other: Short Term Effects

Effects of options expiration are only short term, as buying and selling that increases is based solely on position hedges that are being entered and removed. Therefore, any spikes that occur aren't reflective of any directional bets placed in the stock market.

Bottom Line

Stock market traders often make a big deal about moves that can occur during options expiration day. This is due to the fact that volatility generally does increase and huge spikes in individual stocks are not uncommon. Nonetheless, since the moves are based on market neutral hedging, the long term effects on the stock market are minimal. As such, one popular trade is to search for stocks that spiked due to options expiration-related trading to enter positions in a direction opposite of the spike move.

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One popular trade