Have you guys considered simpler alternatives to conspiracy theories? Like traders closing positions…
If MMs don’t hedge they will get wiped out by such events. MMS always delta hedge. They couldn’t care less whether the SP finishes at max pain or min pain.
As far as I know, at 3.30pm, Robin Hood starts automatically closing out long options that are ITM and where the associated account does not have the buying power to exercise the option (which we can assume is most RH accounts since the average RH account size is ~$2.5k and TSLA options trade with a 100 multiple, i.e. even a call option with a $50 strike will require an account balance of $5k to be exercised)
Given the facts that
(a) TSLA's option market is by far the largest;
(b) a lot of retail traders gamble in TSLA options;
(c) there has been a substantial runup in TSLA this week;
(d) upon sell-to-close, the market makers need to unwind the hedges they had entered into to remain delta neutral (i.e., sell the shares they had bought to be able to deliver them should the option holder exercise);
(e) this being a predictable and thus tradeable signal (will happen every options expiration date around 3.30pm), inviting algo traders to frontrun the expected dump by shorting ahead of the 3.30pm mark;
(f) other call option holders, upon recognizing the fast decrease in price, decide to close out their long option positions, thus further adding to the downwards pressure, along with equity daytraders who were long after the runup today and likely had trailing stop losses set;
a case can be made that this behavior is by design and not manipulation.
The higher the MM's exposure (i.e. the higher the accumulated delta for all the options being liquidated is), the sharper the dump should be. Due to the substantial runup in TSLA, a lot of outstanding options went from OTM to ITM, substantially increasing the delta that the MMs had to warehouse (like a sponge).
Happy weekend
Max