Quote from Nine_Ender:
A stock doesn't have to close at a strike price to have been manipulated in this way. What will usually be observed is a stock that is say .50-.70 cents above a popular strike will drift downwards to some point closer to the strike near end of day.
One additional aspect is sometimes the last few minutes the manipulation ends and prices rebound quickly, but by then most holders have sold.
3 out of 25 stocks on the exact strike price is actually surprisingly high !!! Think about the odds that in a large marketplace the price wasn't even off a penny !!! Wow, that is imprsssive.
Looking beyond expiry week, whole number "magnets" seem to occur in general on some stocks and this can be a day trading edge.
3 of 25 one time is a finite sample and means nothing.
Conveniently, yesterday was expiration. I dusted off some of my very old macros and exported closing prices from my database.
Breaking them into $1, 2.50, $5 and $10 strike groups would be a Herculean task and I have better things to do
. But making a few simple assumptions can provide a quick glimpse at distribution in a coupla minutes.
There were 827 stocks that closed b/t $25 and $50. I assiduously maintain only the data of stocks I'm tracking/trading so 827 may be off by a few (options delisted, stopped trading in the past week or two due to merge/buy out, symbol change, delisting, etc.). Grant me a small fudge factor
Here's a break down of the number of these stocks and their distance from the nearest dollar.
00 -05 85
05 -10 85
10 -15 90
15 -20 63
20 -25 106
25 -30 77
30 -35 67
35 -40 90
40 -45 76
45 -50 87
And FWIW, 11 closed exactly at a round dollar amount.
If max pain drove stocks across the board toward the strike, you'd expect to see a lot more within 5 or 10 cts of the nearest dollar versus 40-50 cts away. You don't. That lack of clustering happens every expiration.
Now you can argue that the are only a modest amount of optionable stocks with $1 strike increments and the above has no relevance. Trust me, the same even distribution occurs for distance away from strikes of $2.50 or $5.
None of this is very scientific but it's a lot closer to reality than suggesting that magnetic market manipulation causes pinning.
Personally, I think there are better places to look that a 15+ cent expiration effect. Now if you're making serious pin money once a month with your magic secret expiration decoder ring then more power to you.
Of course, they act like flukes and unusual reactions shouldn't count against them then!
:eek: