Due to the physical settlement of stock derivatives(Futures and options) upon expiry, the margin required to trade/carry over such derivatives starts increasing gradually from Friday of the week preceding the expiry week. Forcing traders to close their positions in the pre-expiry week causes the pre-expiry week's volatility. In most cases, it results in a correction of the larger trend in the market. After SEBI has changed the margin rules for intra-day trading, many traders have moved to options thereby raising options share of net trading volume in monetary terms to almost 80%, thereby making the impact of pre expiry week very signifacant.
Like most things in market analysis, it isn't a rule but a general guideline that helps you better manage your risk better.
Like most things in market analysis, it isn't a rule but a general guideline that helps you better manage your risk better.
