Hey OFT'ers, I had the chance to witness a $1+ billion option head in to the NY cut the other day, strike of 1.3500. Options this size can make some strong order flow as seen in the chart below.
The order flow generated could be from banks hedging as price approaches a strike where their clients will need to be paid out, or from large option holders exercising their right to buy/sell after price as gone in-the-money which could send price back past the strike level. There are two sides that need to trade, and if the option is large enough, there will be enough trading done to actually move the market.
Its important to note that after the 10am NY option cut, that day's options will expire and the gravitational pull it had won't be there anymore.
Here's an example of Eur/Usd's price action on Sept 26th.. News of a large option expiring today http://goo.gl/V3tMdC from Forex dealers, and how price reacted:
The order flow generated could be from banks hedging as price approaches a strike where their clients will need to be paid out, or from large option holders exercising their right to buy/sell after price as gone in-the-money which could send price back past the strike level. There are two sides that need to trade, and if the option is large enough, there will be enough trading done to actually move the market.
Its important to note that after the 10am NY option cut, that day's options will expire and the gravitational pull it had won't be there anymore.
Here's an example of Eur/Usd's price action on Sept 26th.. News of a large option expiring today http://goo.gl/V3tMdC from Forex dealers, and how price reacted: