A strategy idea for options trading investors.
It’s Expiration Friday, time to maybe look for the ‘Pin Tracter Beam’ to attract some stocks to strike? Before naming names, let’s just run some explanations and disclaimers first.
We define a “pin” as when a stock closes at, or very near, a strike price on Expiration Day. Of course a stock can randomly close at or near a strike price on any day, but studies have shown it is marginally more likely to occur on an expiration day.
Why, you ask? Because owners of rapidly-decaying options paper respond by selling their options and/or trading the stock tightly around the strike. Both serve to add pressure on the stock towards the strike price, at least on the margins. The greater the open interest compared to typical daily stock volume, and the lower the volatility, the more likely the stock is to hover near the strike price.
Furthermore, with Weekly expirations and dollar-wide strikes in many places, some names simply have to pin somewhere, over and over again.
And I would strongly emphasize this is only a force on the margins. If you are on the move like Google (NASDAQ: GOOG) for example, pin forces have little or no effect.
So who’s looking “Pinny”?
Well, we have Exxon Mobil (NYSE: XOM) near $82.5. The stock has the non-volatile part down and it’s in a kind of a low volatility grind higher as of late. Open interest is non-exceptional though at 33,000 on the calls and 10,000 on the puts versus typical daily stock volume of about 20 million. XOM might just sit here anyway, but it won’t have all that much to do with the options.
On a higher octane level, we have Apple (NASDAQ: AAPL) and the AAPL Jul 360 strike. There’s 53,000 open interest in the calls, and nearly 11,000 in the puts. And in fact the puts have already traded 12,000 times today as I type, so there’s some play in this. Daily stock volume is around 15 million, so the numbers look better here if you want a pin. But again, I’d emphasize this is just stuff on the margins. If they announce Iphone 5 or whatever, expiration forces towards strike mean nothing.
Follow Adam Warner on Twitter @agwarner.