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Potential Ideas for Feb’07 Pinning

Published on February 16, 2007

Potential Ideas for Feb’07 Pinning

February 16, 2007

Here are couple of ideas for trading the pinning action today. Pls keep in mind though that these are only a few of the several strategies to play pinning and when market opens the prices may or maynot be same vis-a-vis my analysis.

While trading this I need to be very careful. For instance in first example, my breakeven points are 456.35 and 463.66. As soon as Google starts to move in either direction away from breakevens, I need to either close the trade or manage it in such way it doesn’t incur losses. Today is the last day of Feb options and hence the options will lose premium very fast. Most of the premium will lose its value only in the last few hours after lunch. Let’s begin the show:

  1. The Google great : Look for Bear call spread of 460/470 and Bull put spread of 460/450. This creates an Iron fly that gives a credit of $335 vs risk $635. Breakeven points are 456.35 and 463.66The maximum profit is achieved only if Google closes at 460 at the market close. Here is the chart —> google-pin-idea-1.png 
  2. Google backspread : I am looking at short 460 put and long 2 450 puts. This trade gives $120 credit over $880 risk. Breakven point is $458.6. As long as google stays above it, I will not lose money. If it stays above 460, I will be able to keep all my premium. Here is the chart–>Google Pin Idea-2
  3. SHLD Iron Fly: I am looking at bear call spread 185/190 and bull put spread 185/180. The break even points for this trade are 183.22 ans 186.75. I can create a backspread for SHLD as well for -1 @ 85/+2 @180 puts. Here is the chart for Iron fly—> SHLD Pin-1 
  4. OIH Fly: Other play that I am looking at is OIH iroon fly or backspread. Specifically I am looking at $135/$140 bear call and $135/$130 bull put spread. This trade is going to yeild 165 over 335 risk but only if OIH expires at 135. Here is the chart–>OIH Pin-1 

There are many more. One just needs to analyze and review which ones have potential to be pinned. One thing to keep in mind, this will require continuous monitoring of the trade so that appropriate action can be taken. When market opens I shall review what prices I should open the trades at.

Cheers and enjoy the profitable expiration, OptionPundit

Disclaimer : As with other posts, this is not an advisory. These are my personal trades that I open for viewing. Please read the legal notices and disclaimer here for details.

7 Comments

  • Avatar Optrader says:

    Great post and great ideas. Will be interesting to first see if this is going to be a volatile day.

  • Avatar Optrader says:

    Something does not make sense about the Iron Fly. As you are going to monitor the trade anyway, why do you buy the long call and put? They only bring you a limited risk, but I don’t think you would let the trade get to this point anyway as it would be a big loss.

  • Avatar AK says:

    Manoj, great post. I am going to start using the pinning from March.

    Keep the good stuff coming.

  • Avatar YukTrader says:

    Very nice site…thanks for visiting my blog and look forward to digging deeper into your posts…don’t really use many of these strategies but looking forward to trying some of them out.

  • Avatar Optrader says:

    OK, ignore my first question. You are buying the long shorts because of margins, right?
    Well, looks like they are going to pin GOOG at $470. I am getting ready to enter the trade.

  • Avatar Optrader says:

    Oppundit,

    One last comment about this trade. Why not simply buy a butterfly?

    + 10 460 calls
    + 10 480 calls
    – 20 470 calls

    Risk/reward seems a little bit better.

  • Avatar OptionPundit says:

    Thanks for the compliments optrader, AK and Yuktrader.

    Optrader, it is same as butterfly. It is call iron becuase we collect the premium upfront. The key difference is that Iron fly is made up of two credit spread. It something similar in your butterfly example. You have one bear call spread i.e. 470/480 and one debit bull call spread 460/470.

    Hope it helped in diagnosing the trade better, cheers and profitable trading,
    OptionpUndit

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