Are the indexes going to fall because options expire once again later this week?

Friday marks the end of the January option period. That historically generates more volatility. December’s expiration came at a very volatile time for the market anyway as it had just tapped the down trendline and was already coming back down. That added to the downward momentum the extra volume generated. This time around the Nasdaq is once again at the down trendline, and that raises the possibility of a fall down once again. This time, however, there is more positive action in stocks and the indexes, and we have a Fed rate cut that has propped things up somewhat despite what some on the television are saying. This time around we think the momentum will be more to the upside than downside with the positive action we see. Bad news could upset the apple cart, but we don’t think it will be devastating as it was last time.

Again, for short-term option plays, remember that after expiration, shorter term options will start losing some value, all things remaining equal. If there is selling ahead, it will be difficult for them to regain upside momentum in a short time period.