The great thing about options is that they can be played in so many different interesting and creative ways.
A case in point: There is a cult of options traders who focus on the last two days of the monthly options expiration cycle. These traders focus, separately, on expiration Thursday trades and expiration Friday “pinning” trades. The premise for each of these trades is different.
Expiration Thursday trades focus on the tendency of options to bleed implied volatility in a fairly dramatic fashion on expiration Thursday. Vega negative trades are usually chosen to take advantage of this phenomenon.
Expiration Friday “pinning” trades focus on the tendency of stocks to “pin” to a certain price on options expiration day for certain technical reasons which may have something to do with the amount of open interest at various strikes. There are lots of ways to play this phenomenon utilizing options including the outright purchase of puts or calls , the buying or selling of vertical spreads and the structuring of at-the-money, theta positive structures centered at the predicted pinning price such as butterflies.
On Tuesday, Craig Wassenberg will be presenting his approach to these trades to our Options Tribe community. This morning, Craig and I exchanged emails on his current thinking about GOOG and AAPL. Craig is an extremely thoughtful and careful trader in an arena which is very technical and potentially dangerous. He’ been keeping me updated this morning as to his thoughts:
First thing this morning: “ might be a good pinning day in spite of all the recent upheaval. It’ll be interesting to see what the price charts reveal over the next hour. AAPL and GOOG have nearly identical open interest patterns.”
An hour later: “My strategy now is to wait for the pins to declare themselves. I’m now guessing AAPL at 320 and GOOG 490, but could be 325 and 500 respectively… some good set up aspects: the market is quiet and both GOOG and AAPL have both shown some independent behavior relative to the market.”
Yet later: “This is a perverse situation. I expect both AAPL and GOOG to head for a strike price. Question is which ones? Migrations to a pin usually happen fast with big candles. I might go in early if/when I see that happen.Good news is option prices will likely hold up until pretty late in the session given the patterns of late moves we’ve seen this week. Watching and waiting….”
Moments before I posted this blog entry: AAPL Looks Like It’s Headed to $320…Trade seems fairly safe at this point to me.
So many of SMB’s fundamentals are evident in Craig’s approach to Friday pinning trades: patience, discipline, hard work and a detailed plan. Whatever Craig ends up doing, including a valid decision to do nothing, will be dictated not by emotion or greed, but by the principles of what we call “One Good Trade” at SMB. I’m anxious to find out what Craig ultimately decides to do. Stay tuned.
Update: The recording of this webinar is available on the Options Tribe Premium archive.
Have a great weekend everybody!
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].
