How to use forex option expiry information

Author: Mike Paterson | Category: Education

Frequently asked questions about the relevance of daily option expiry posts

How to use forex option expiry info has been a common question and so here is a definitive-ish guide which we can all refer.

First off let me say that these contracts are “vanilla” ( for more detail see our jargon busting guide here). This invariably means that the contract will still be “live”/in play until expiry time which is generally designated at 10.00 am NY ( 15.00 GMT) each week day. This is different to a ” barrier” option which is “dead” once breached.

If the prevailing price is close, say 30-50 pips away, and the expiry is large ( $750m + but smaller in less liquid pairs) we can often see the price affected/magnetized as battle ensues from both buyer and seller. We don’t see the details of whether it’s a “put” or “call” but the price action leading up to the event is what we’re really looking for.

There is no precise science to this and any impact will largely depend on the prevailing market sentiment, but yes we can sometimes see a sharp reveral leading into the expiry only to resume previous trend after.

This chart traces $1bln of USDJPY expiries for example and had a magnetic containing effect on the price action into expiry time and for a while after before then exploding higher. Co-incidence?

USDJPY option expiry post

There is no rule- of-thumb trading recommendation we can make except to just be aware of  these contracts rolling off. There are definitely occasions when it will help to explain prevailing, and subsequent, price action.

There are those, ney many, traders who dismiss any notion of connection/impact but we leave that final judgement to each and every one of you.

Let us know whether you have had good/bad/don’t-care experiences in your trading around these times.

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