Thursday, February 9th, 2017

Stock Pin Action

The third Friday every month on Wall street brings strange bliss to option traders. Day traders and scalpers hate this day. Because  for one thing they cannot make any money. Because major stocks are stuck at certain strikes and finish the day without any movements.

This frustrates a lot of folks who are not Hedge Funds and Institutional traders and market makers. They just loathe the day and in the end just get dismayed and look forward to next Monday to bring some action.

But on the options side lots of things happen  and lots of volume goes through the funnel. Stock are pinned where institutional traders and people with lots of open interests unwind those positions and go  home  FLAT. The concept of going home flat is age old. I lose nothing, I win nothing, neither do you. We are all even in good spirits and do good to each other, after all we are all pros and we make our bread and butter and put food on the table from this golden goose known as the stock market ( which we never kill in fact ) and so another month goes by and we come to the same day and Mr.Vinny the market maker now wants to go home FLAT.

So he unwinds all the calls at a certain strike and than his client also unwinds some of his puts. How nice both of them can go home FLAT?  So we sell just enough stock to bring it to a certain strike so my put  can be bought back for pennies and your calls can be bought back for few cents. That can only happen if we have a mutual strike in mind ? Right?  Well its not that difficult to find such a strike after all we have all the open interest on the option tables anyone can look up ! So the strikes where maximum open interest is  becomes the  subject of pinning phenomena. The stock just hugs that strike not exactly, but very close, and spends a day in jail.

Come Monday morning everything kicks back to normal.

With this benign explanation from a layman, I usually spend this time taking advantage of  the  holy communion between Mr. Vinny the market maker and Mr. Hedge-fund and make our own side deals. These are called stock pin trades. I have been doing these over the years and sometime they work out sometime they don’t. These are speculative trades.  Here are some of the strikes where pin action is possible if we don’t have a trending day.

AAPL 190/195 GOOG 590/600     GS 160/165     BIDU 410/420      FCX 75/80

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Comments

One Response to “Stock Pin Action”
  1. A stock option will give the buyer the right to either buy a stock at a specific price if it is a call option or sell the stock at a specific price if it is a put option.

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