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Are Striking Prices Hurdles or Aids - H Option OI
Posted by Tango
on February 6, 2021, 6:37 am
As most of us know, when we approach expiration of an option contract, traders tend to complete their hedges. As an example, those that are long 125.00 calls will hedge what they have not yet hedged at around the striking price. Whatever is sold above the strike, they will buy back below it, as the hedge is no longer needed. Those that are long puts will buy below 125.00 for example, and sell their hedges above 125.00 because the hedges are no longer required. And so, striking prices become a hinderance by providing support/resistance levels as we are experiencing. But for day traders, strikes are clearly good aids for trading. Of course, there are those who wrote the options. If for example prices were to rise dramatically above the 125.00 strike, then delta shorts would need to cover their potential exercises. As a rule, in my opinion, options provide support and resistance in a quiet market, as we are experiencing, and added volatility in a wild market due to delta shorts.