A selloff into October OPEX refers to a period of significant selling pressure in financial markets that occurs leading up to October Options Expiration (OPEX). OPEX is the day when options contracts—both calls and puts—expire, typically on the third Friday of the month.
October OPEX can matter more than in other months due to several factors:
Market Seasonality and Historical Trends:
- October is historically volatile: October is known for market corrections and crashes, such as the 1929 and 1987 crashes. This creates a perception of heightened risk, which can lead to increased market nervousness around this time.
- “October Effect”: While not a rule, the October effect refers to a psychological expectation of volatility, often causing increased caution and reactions in the market.
End of the Fiscal Year for Many Funds:
- Many mutual funds and institutional investors end their fiscal year in October, leading to portfolio rebalancing or tax-loss harvesting before year-end. This can contribute to selloffs or shifts in the market around October OPEX as managers adjust their positions to lock in gains or minimize losses.
Proximity to Year-End:
- As October is the start of Q4, there may be position adjustments in preparation for the end of the calendar year. Investors may shift their strategies, looking to lock in profits, close out options positions, or reposition for the final quarter.
Increased Options Volume:
- October often sees elevated options activity, as investors anticipate end-of-year movements and volatility. This higher volume of options trading and expiry can lead to greater market impact during October OPEX than in other months.
Earnings Season:
- October OPEX frequently coincides with the start of Q3 earnings season, adding another layer of uncertainty and volatility as companies report financial results, leading to sharp moves in stock prices.
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