Here’s an  e-mail I received from a good friend of mine and former mentoring student  Options Tribe Member Craig.  Craig is a fine option s trader and specializes in “expiration week trades”. These are highly specialized trades that Craig makes almost every month during options expiration week.

Each  expiration week , I ask Craig what he’s up to this month. Here’s an example of the kind of input I get from him. Last week on Friday morning, I asked Craig whether he felt that GOOG was “pinning” to the 530 strike. “Pinning” is the term used  for the  tendency of stocks to hover around a strike with a very high open interest on the Friday of expiration week.:

Hi Seth,

Good question … I can’t decide yet.  In looking at open interest  this morning I would predict a GOOG  pin at $525 most likely and $530 second most likely.  It wouldn’t surprise me if  GOOG  kind of hovers between those strikes for most or all of the session.

I’m also watching AAPL at $340.  So far AAPL is pretty much just shadowing the overall market (5 minute candles are VERY similar). I prefer to see more independence.  When AAPL is “of its own mind” I usually feel pinning effects are taking over.

Volatilities  are already pretty low, premiums are kind of, how you say, lousy.  Also, given that the market is down today remaining volatilities might not come out until a bit later in the session so I’m not going to rush.

From here I’ll watch for squeezing Bollinger bands and, hopefully clearer convergence to the expected strikes.

Craig

Note Craig’s discipline–he is not jumping into anything until conditions are right.  Knowing Craig as I do–if nothing appears promising, he simply won’t make any  trades that day. Last time I checked there is no federal law requiring that you make trades with lousy potential outcomes.

By the end of the day, Craig  did  in fact make  a GOOG trade  ( and  an AAPL trade by the way– profitable but much less so). He was correct– in the afternoon, GOOG gravitated towards his predicted strike–525 at which point  he pressed into action.  Here’s his  report to me later in the day:

Hi Seth,

Should have bet the farm (on GOOG).

GOOG:  Bought the  $525 put  @ $.10 then sold at $1.00 about ten minutes later when it appeared GOOG would migrate to the $525 strike.

 

AAPL: Tried a similar play but didn’t get the returns …. Bought the  $335 put  @ $.10 and sold for $.15.

Craig will be presenting at an upcoming Options Tribe meeting where he’ll run through a his thinking behind these interesting options trades.

In the meantime, our next tribe meeting is   two days from now, Wednesday May 25 at 5pm. You can register here:

Hope to see you then!

Seth Freudberg

Director,  SMB Options Training  Program

The SMB Options Training Program is a  program designed for novice and intermediate level options traders who are seeking an intensive training process to learn how to trade options spreads for monthly income. For more information on this program contact Seth Freudberg: [email protected].