Here’s an\u00a0 e-mail I received from a good friend of mine and former mentoring student\u00a0 Options Tribe Member Craig.\u00a0 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.<\/p>\n
Each\u00a0 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\u00a0 for the\u00a0 tendency of stocks to hover around a strike with a very high open interest on the Friday of expiration week.:<\/p>\n
Hi Seth,<\/em><\/p>\n Good question \u2026 I can\u2019t decide yet.\u00a0 In looking at open interest\u00a0 this morning I would predict a GOOG\u00a0 pin at $525 most likely and $530 second most likely.\u00a0 It wouldn\u2019t surprise me if\u00a0 GOOG\u00a0 kind of hovers between those strikes for most or all of the session.<\/em><\/p>\n I\u2019m also watching AAPL at $340. \u00a0So far AAPL is pretty much just shadowing the overall market (5 minute candles are VERY similar). I prefer to see more independence.\u00a0 When AAPL is \u201cof its own mind\u201d I usually feel pinning effects are taking over.<\/em><\/p>\n Volatilities\u00a0 are already pretty low, premiums are kind of, how you say, lousy.\u00a0 Also, given that the market is down today remaining volatilities might not come out until a bit later in the session so I\u2019m not going to rush.<\/em><\/p>\n From here I\u2019ll watch for squeezing Bollinger bands and, hopefully clearer convergence to the expected strikes.<\/em><\/p>\n Craig<\/em><\/p>\n Note Craig’s discipline–he is not jumping into anything until conditions are right.\u00a0 Knowing Craig as I do–if nothing appears promising, he simply won’t make any\u00a0 trades that day. Last time I checked there is no federal law requiring that you make trades with lousy potential outcomes.<\/p>\n By the end of the day, Craig\u00a0 did\u00a0 in fact make\u00a0 a GOOG trade\u00a0 ( and\u00a0 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\u00a0 he pressed into action.\u00a0 Here’s his\u00a0 report to me later in the day:<\/p>\n Hi Seth,<\/em><\/p>\n Should have bet the farm (on GOOG).<\/em><\/p>\n GOOG:\u00a0 Bought the\u00a0 $525 put\u00a0 @ $.10 then sold at $1.00 about ten minutes later when it appeared GOOG would migrate to the $525 strike.<\/em><\/p>\n <\/p>\n AAPL: Tried a similar play but didn\u2019t get the returns \u2026. Bought the\u00a0 $335 put\u00a0 @ $.10 and sold for $.15. <\/em><\/p>\n Craig will be presenting at an upcoming Options Tribe meeting where he’ll run through a his thinking behind these interesting options trades.<\/p>\n In the meantime, our next tribe meeting is \u00a0 two days from now, Wednesday May 25 at 5pm. You can register here:<\/p>\n