- Big option expiry at 0.8800 EUR/GBP could impact the spot price on Monday

- Exchange rate tends to bob around the expiration level close to the time, say experts

- Current spot price 0.8824 could mean downside bias to expiration level

A very large option expiry at the 0.8800 level on EUR/GBP (1.1364 GBP/EUR) today - with a value up to €1.1bn - could impact short-term moves in the exchange rate, according to Richard Pace, an FX correspondent at Thomson Reuters.

Option expiries of above 600m can impact the exchange rate as they tend to act as a "magnate" to prices says Jarratt Davis, a noted trading instructor and hedge fund manager.

Options affect the market via a phenomenon known as 'pinning', when the market tends to bob up and down around the expiry level as option writers try to manipulate the market in their favour buying and selling to get the spot price as close to the strike price as possible.

"Very often an option expiration of a certain price will act almost like a magnet. For example, if you got an option expiration of a billion on EUR/USD at 1.10 the price will tend to gravitate around 1.10. It might come up maybe beyond 1.10 a little bit but most likely it will eventually come back down. In a way it will just hover around option expiration price until the time of the cut," says Davis.

The "cut" or the exact time of expiration is 14.00 GMT on the day of expiry and this is when the most option-related activity occurs, according to veteran dealer and analyst at Liveforex.com Mike Patterson.

This suggests the up-and-coming expiry at 0.8800 on EUR/GBP could have a bearish, downwards effect on the exchange rate in the run up to this afternoon cut, suggesting a bias for traders to short the market from its current level.

A lesser expiry at 0.8835-40 (1.1310-15 GBP/EUR) of 460m which lies below the 600m threshold for influencing the market is also scheduled for Monday afternoon.

The actual impact on the exchange rate from expiries depends a lot on the exact type and combination of options expiring and whether they are options to buy (call) or sell (put).

This data, however, is often very difficult to get hold of and therefore traders should use large option expiries as guidelines more than exact indicators, and the best way is to see them as potential magnates for price as in the case of 'pinning'.

"Obviously, the whole answer to the question is complicated. It involves strike prices and calls and whether or not trades are going to be exercising those options. This kind of information, as I said, is very difficult to get hold of. But the simple way of trading this is understanding that really big expiry orders (I'm talking maybe over $600 million to a billion to $2 billion to $3 billion) tend to act like a magnet to the price," says Davis.

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