We at ForexFlow were on watch for a possible trade on a large option expiry
A 2.12bn expiry at 0.6700 in AUDUSD caught our trading interest today, mainly because of its unusual make up. It’s only been put on since late Jan and has the signs that it’s possibly just one player, meaning there might be greater interest to see it fall the right side of the big figure on expiry.
We know that the majority are puts but don’t know which way the player would like the price (could have bought or sold them) but whichever way they might be, the other side of the trade would want the opposite reaction.
It did pique my trading interest as we were pretty close to it last night and could have offered us a trade IF the PA was holding it around the strike while other related currencies were moving into the expiry time. But, it seems the other market forces have quashed that idea..for now.
Many people take a simplistic view that large expiries naturally get magnitised to the strike price but the reality is much different and experience has shown that there’s many things to consider for that to happen. Here’s a couple of examples and explainers on what those conditions are.
This post is one I wrote a few years ago on the make up of the expiries, and it includes a link to a trading experiment on a large USDCAD expiry.
For a general explanation on Forex expiries, read this post.
We provide ForexFlow subscribers with the options expiries on a daily basis, usually the night before the expiry. We also provide a weekly outlook so we know where the big ones are in advance. This gives us great insight into whether the options are going to have a potential say in the spot price during the week.