Expiration Friday's Effect on the Market

Quote from Madgenius:

when a stock is near an option strike with a large
open interest. There is a tendency for it to be pinned
near the stock. That is the stock gravitates toward
the strike.

so now the question is why?
If we take as a given that:

1. People are risk averse when it comes to keeping gains

2. People are risk loving when it comes to avoiding losses

Those who are long the strike are long the stock above the
strike and short the stock below the strike.

thus with large open interest many take their profits by buying
stock slightly below the strike and then selling it slightly above.

Those who are short the strike don't want to lock in losses by
negative scalping the stock(buying above and selling below)

As it gets later in the day, those long the strike are willing to buy
and sell closer to the strike.

those short get more confident of a pin and thus less likely to
negative scalp.

There is more to it, concerning exercises and assignments.
write me if you are interested.

My two cents:)
More...

You know... the more people that know about this ... particularly traders.. the less it wil continue to "work" in the future. SO if you want to take an ad out in the WSJ, go ahead. But when it stops working... you'll know that too many people tried to play the same game.

Of course.. there will always be some traders who are better at playing an edge than others. That is why you can give 10 potential traders a great technical analysis book, and mentor them in pattern recogntion... but yet one or two may turn out to develop the skill level necessary to make consistent money. And that's because like anything else in trading the markets... playing expiry like a virtuoso is an Art.

Happy expiry!

Ice:cool:
 
Thanks a lot for the answers guys. And I think it actually goes a long way towards explining my other question about why the DXJ and DAV's were trading somewhat differently yesterday. Well the DJX expires on Thursday and the DAV's expire on Friday/Sat. So thanks again.
 
Quote from Madgenius:

http://www.optionsclearing.com/market/series/series_search_form.jsp

This OCC website has open interest info. free.
AT financial is where I get it.

also

Iceman

I have an ulterior motive, I want people to
trade options.

Sharing information helps people to trade.
Also we can trade the opposite side of the
same trade and both make money.

I think options are a great financial tool, if
you understand enough to use them properly.

MG:D
More...

Madgenius.... point well taken. Glad to see you have similar "motives".

I do love the options 'game'!

Not only do they add dimension... and unique (and fun) challenge... but as I was telling a brother ET this week... reward trading ingenuity and creativity even more than equities or futures trading alone.

So I'm willing to share my knowledge ("pay it forward" so to speak) when it comes to trading psychology, and technicals; but when it comes to options and (my baby) expiry plays, do tend to get a little selfish after years developing recognition of winning strategies and opportunities. :eek: :eek:

SO I don't think one needs to give away all specifics of a winning strategy, to be a good ET citizen.

But like my earlier post... imho, all trading is an art more than pure science. So giving rules or strategy alone is usually not enough.


Regards

Ice:cool:
 
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