Futures Expiry Trading: What Should Investors Prepare When a "Big Wave" Appears?

If you are a derivatives trader, you’re probably no stranger to the feeling during derivatives expiration days – when the market just calms down, then suddenly experiences unusual sharp price movements. That’s when large investors “play tricks” to adjust the index to their liking. This article will help you better understand derivatives expiration days and how to profit from them, or at least avoid getting “cut deep.”

What Is Derivatives Expiration Day?

Simply put, derivatives expiration day is the day all futures (Futures) and options (Options) contracts must end their life. At this point, anyone holding long (long) or short (short) positions must liquidate their holdings.

Expiration day is not optional – it is mandatory. Regardless of your wishes, contracts will automatically close at the end of the session. The settlement price will be determined on the next business day.

Derivatives Work Differently Depending on the Product Type

Options (Options)

When it reaches expiration, you must decide: exercise your right or let it expire worthless. If you do not act, the option will expire and become worthless.

Commodity Futures Contracts

In theory, the buyer should receive the actual commodity. But in reality, most contracts are settled in cash. The type depends on the contract terms.

Most Popular Stock Futures Contracts (In Vietnam)

This is the most “hot” derivatives type in Vietnam. These contracts automatically settle on expiration day and are paid in cash the next business day. No one receives physical stocks; everything is cash.

Why Do Expiration Days Feel “Crazy”?

On expiration day, you’ll see liquidity spike dramatically. But this is not good news – it’s when investors with “big wallets” start “manipulating” the market to their advantage.

Price Volatility Goes Wild

Large “whales” will buy or sell large-cap stocks to push the index in their favor. This creates a huge gap between the highest and lowest prices during the day.

Indices Get “Manipulated”

During expiration, indices often do not reflect true value. They are pushed up or down just to serve the goals of market makers. Good stocks may be “pumped,” while normal stocks can be “deeply cut.”

Opportunities for Short-Term Trading

Because of this volatility, many experienced traders see it as a chance to make quick profits. Opening new contracts and closing them immediately, exploiting abnormal price swings – that’s the “technique” of market gamers.

How Does Derivatives Expiration Work in Vietnam?

In Vietnam, derivatives tools mainly include the VN30 index futures – a basket of the 30 largest-cap stocks. There aren’t many options like in the US or Europe.

Some Key Facts About VN30 Futures:

These contracts have multiple maturities: 1 month, 2 months, quarterly, bi-annual. The expiration date is the third Friday of the contract month. The minimum price increment is 0.1 index points. The multiplier is 100,000 VND, meaning each point change equals 100,000 VND profit or loss.

Daily price fluctuation limits are +/- 7%. Trading methods include order matching or negotiated trades. Trading hours are from 8:45 AM to 2:45 PM with specific intervals. The settlement price is the last traded price, or if you hold the contract until expiration, it’s the VN30 closing price.

Maximum individual position is 5,000 contracts, and for institutions, 10,000 contracts. Settlement is fully cash-based in the account.

What Should You Do During Expiration Day?

Method 1: Proactively Close Positions Before the “Storm” Arrives

If you hold contracts, the safest way is to close your positions before the session ends. This way, you control your profit or loss at a price you accept, rather than being “forced” to settle at the final market price manipulated by the market.

Example: You hold 10 VN30F contracts expiring on 19/10. If you don’t close, the contract will automatically settle at the VN30 ATC price at the end of the session. But if you close early, you might get a better price.

Method 2: Adjust Positions to “Buy on Dips”

Because prices are “manipulated” during expiration, this could be a good time to buy quality stocks that market makers are selling off. If you believe in the fundamentals, prices will return to normal within a few sessions.

Method 3: Stay Out and Observe

If you’re not skilled at “scalping” during chaotic market times, stay out. It may sound dull, but it’s the safest approach. Even if your stocks decline, it’s just temporary volatility serving the market makers’ plans. Prices will normalize after a few sessions.

Will Future Expiration Days Be More Stable?

Currently, expiration days in Vietnam are quite “harsh,” especially the final ATC session. But it’s likely to improve thanks to some factors:

Regulatory Measures

Since June 2022, the State Securities Commission has changed the settlement price calculation. Instead of using the last price, the system now takes the average of the last 30 minutes, excluding the top 3 highest and lowest prices. The goal is to prevent last-minute price manipulations to push or depress the index.

Higher Liquidity Means More Difficult Manipulation

Vietnam’s derivatives market was established only in 2017, so it’s still young. The proportion of stock account holders is only about 5-6%. As more investors participate and liquidity increases, it will be harder to “pull” the index.

Introduction of New Derivatives Products

Currently, only VN30 Futures exist, but in the future, options (Options) or commodity derivatives may appear. Then, expiration days will diversify and be less prone to “taming” as they are now.

Important Reminders for Investors

Know the Expiration Schedule Clearly

First, identify the expiration date of the contract you hold. On that day, the contract will automatically settle with no options. You can find this information on trading apps or financial websites.

Even if you don’t trade derivatives, tracking expiration days is important because they significantly impact the underlying market. The market may plunge, but it’s just temporary volatility, so avoid panic selling.

Choose the Right Contract

When buying VN30 Futures, consider the expiration date. Contracts expiring within the month are usually preferred for short-term trading and easier to predict than 2-month or quarterly contracts.

Manage Risks Strictly

Volatility offers opportunities but also risks. If the market moves against your position, you could suffer heavy losses. Always implement risk control techniques like stop-loss, position sizing, etc.

Summary

Derivatives expiration days are special trading days where abnormal price movements are normal. If you hold derivatives, wise action is to close contracts early to control profits and losses.

Remember, indices during these sessions can be highly volatile, but it’s only temporary. They will return to normal in the next session. If you understand this mechanism, you can either exploit the volatility for profit or simply stay away to preserve capital.

In the future, with regulatory intervention, increased liquidity, and new derivatives products, expiration days will become more stable. But until then, prepare well and manage risks carefully when entering this “battle.”