Feb 16th is an exciting day
I mentioned in my past posts about the expiration day opportunities that can be categorized into two types i.e. Directional and Non-directional trades
I am going to cover non-directional part with respect to pinning of stocks. For the beginners who are wondering what is pinning, it simply means, the tendency of stock’s price to close near the strike price of heavily traded options as the expiration date nears. There are a lot of good studies conducted on why pinning takes place; you may Google “Pinning of stocks” to get more understanding. Here is a brief analysis of Google for the past 5 months and projection for tomorrow’s action.
- Sept 15, Pinned ~ $410, Oct 20, Pinned ~ $460
- Nov 17, Pinned ~ $500, Dec 15, Pinned ~ 480, Jan 19, Pinned ~ 490
- Feb 16, probably it will be pinned around $460 unless something exciting happens overnight that cause Google to either gap-up or gap down.
Other observation worth noticing is that $460 is currently a technical support area. It may bounce back from here next week and therefore, in my opinion, there are 2 opportunities 1) pinning and 2) benefit from the stock’s movement from Monday.
How to play pinning: I experimented this in December and played an Iron fly that generated 29% profit. Check out the details. Also in the same post, there is a chart which shows very clearly that after lunch Google continued to move in horizontal line. You may want to paper trade first to have a feel on how it behaves.
Adam has identified several candidates XOM (~$75), GE(~$35), MSFT(~30), MO (~85), T(~35), VZ(~35), and add Goog to list (~460). Check out his excellent post.