Why do markets tend to gravitate toward option strikes?

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One observation noted over the years is the powerful magnetic attraction of market prices to large expiries of so-called vanilla (plain ordinary puts and calls) options.

All things being equal (are they ever?) prices tend to gravitate toward the strike price at the time of expiry.


Because each side of the trade has to actively hedge their exposure.

Let’s use the example of a $500 mln JPY put/USD call struck at 100.00.

One side has an exposure of $500 mln dollars when the market is at or above 100.00 and the other side has no exposure. At 99.99, the other side of the trade has a $500 mln exposure and the other side has zero. All the jockeying back and forth tends to draw prices close to the strike as each side tries to position themselves for the moment when the option is exercised or expires out of the money.

This action is most noticeable in the run-up to 10 am New York time when the vast majority of options expire.




Jamie Coleman


  1. Very good, thanks Jamie.

  2. is it the same principal in option barrier interest? e.g. yesterday had 1.3250 option barrier interest!

  3. Thanks Jamie, I have often wondered the same thing. I thought it was too coincidental, that strike prices were almost always just struck just before the option expires. I thought it may have been due to market manipulation more than anything, but your explanation really makes sense to me.

  4. thanks jamie, very interesting. Where can I find the upcoming and past major strike prices as would like to study the price action around them. tks again and don’t be too hard on the europeans they’ve given us some culinary delights!


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