Stock Market Update Thursday February 15, 2024 Stocks advanced by another 0.7% on the S&P 500, achieving yet another fresh closing high on the broad index and extending the rebound from Wednesday’s post-CPI decline. However, the market exhibited some weakness midday, with the Nasdaq declining by 0.5% due to weakness in key tech stocks such as Apple and Nvidia. Despite the overall positive sentiment in the stock market, it's crucial to exercise caution, particularly given that it is options expiration week, during which market makers must manage stock prices to optimize their profits.
Concerns about global economic health intensified as Japan’s GDP unexpectedly contracted for a second consecutive quarter, mirrored by a similar contraction in the United Kingdom. The possibility of a global recession poses challenges for the U.S. economy to remain resilient. These concerns were further underscored by weaker-than-expected U.S. retail sales data for January. Nonetheless, the S&P 500 surged to a new record closing high.
Even amidst market volatility, the Russell 2000 index managed to rebound, with Super Micro Computers Inc. ($SMCI) playing a significant role in driving its performance. The Russell 2000 index has gained 34 points year-to-date, with Super Micro Computers contributing 26 points to this increase. Notably, the remaining 1,956 stocks in the index contributed only 8 points collectively. Weakness in Apple, Nvidia, and other tech giants weighed down the Nasdaq indices, tempering overall market enthusiasm.
Away From Stocks: The long bond declined by another three basis points to 4.42%, while the two-year yield held steady at 4.56%. WTI crude oil prices rose to nearly $78 a barrel, gold rebounded above $2,000 per ounce, and the VIX slid to 14, marking a decrease of 3.5 points from its mid-week peak.
More About Options Expiration A.K.A Options X Week
Options expiration is the date when an options contract ends. It's like the deadline for using or selling the options you own. If you don't do anything with your options by this date, they become worthless. Traders often make decisions before this date, which can affect the prices of options and the stocks they're connected to.
Market makers profit from options expiration primarily through the bid-ask spread and by managing their options positions.
Here's how:
1. Bid-Ask Spread: Market makers profit from the bid-ask spread, which is the difference between the price at which they are willing to buy (bid price) and sell (ask price) options. They aim to buy options at a lower price and sell them at a higher price, capturing the spread as profit.
2. Managing Positions: Market makers continuously adjust their options positions to minimize risk and maximize profit. As options approach expiration, they may adjust their positions by buying or selling options contracts to maintain balanced exposure to the underlying assets. By managing their positions effectively, market makers can capitalize on changes in market conditions and volatility leading up to expiration.
Additionally, market makers may also benefit from increased trading volume and liquidity around expiration dates, as traders buy and sell options to close out positions or take advantage of price movements.