This isn’t a normal week in the market, Evolvers.
Thanksgiving is tomorrow and the market is closed.
And whenever holidays cause irregular trading hours, there are special considerations for traders to keep in mind.
Plus, a recent change in the way a certain index fund’s options are traded could have wide-ranging implications on the entire derivatives market. (More on that later…)
With a slightly longer break in between trading days, we’ll have to see if traders are feeling risk-on (bullish) or risk-off (bearish) holding over this weekend.
The answer to that question could give us some clarity as to the near-term direction of the market next week.
Will this condensed trading week lead to a rally, a flush, or more sideways price action?
We’ll have to wait and see. But first, let’s go into further detail about a few key shifts traders should be paying attention to this week…
Never-Before-Seen SPY Options
In the past few weeks, there’s been a big change in the options market that not everyone is aware of.
The S&P 500 ETF Trust (NYSEARCA: SPY) — the largest and most widely-traded index fund in the world — created zero-days-to-expiration (0DTE) options for every day of the week.
If you don’t know what that means, allow me to explain…
Most stocks only offer options contracts that expire once a month. On the other hand … the biggest, highest-volume names will often have options that expire every week…
Then, there are the index funds (like the SPY), which historically have offered options that expire every Monday, Wednesday, and Friday … until last week.
Now, there’s a SPY expiration date on Tuesday as well, making four days of the week with 0DTE options.
But if you aren’t trading the SPY, why should you care?
Because the SPY is the most important chart on the planet, illustrating the moves of the 500 biggest companies in the U.S.
So, if you’re trading any one of those 500 companies (especially the heavily-weighted large-caps), this change in SPY option expirations could materially affect your positions.
That’s even more true in 2022. The SPY’s options volume has surged as every trader on the planet eyes the chart for signals of the end of the bear market.
Will this change in SPY’s expiration dates change the way large-cap options trade?
That remains to be seen, but it’s crucial to know what’s going on to make informed trading decisions.
And aside from expiration dates, there’s something else to consider before trading this week…
Irregular Trading Hours
The market is closed tomorrow for Thanksgiving and closes early (at 1 p.m. Eastern) on Friday.
Whenever there are irregular trading hours, stocks can do strange things.
The condensed trading time throughout the week could have potentially different effects…
On one hand, we could see a FOMO-induced rally heading into the holiday. Tuesday’s trading may have been foreshadowing this as the SPY was up as much as 1% intraday.
On the other hand, if traders are feeling risk-off by the end of today’s market hours, we could see a quick flush to the downside.
Think about this week from an option trader’s perspective … weekly contracts have a day-and-a-half shorter lifespan than normal.
This could lead to low-volume, boring trading … or potentially to some crazy price action.
The truth is, no one knows what’s gonna happen yet.
But if you’re unaware of the fact that the market is trading on an irregular schedule this week, you could make a bad trade and lose big.
So, whatever you do, make sure your game plan fits with this week’s market schedule.
As important as these considerations are, this week should be more about giving thanks than trading.
If you’re spending time with your family and not watching the market, there’s nothing wrong with that. Don’t get FOMO! Enjoy yourself!
The stock market will still be there on Monday and we’ll all be full of turkey, ready to crush whatever setups come our way.