Search the Community
Showing results for tags 'pinning'.
Found 1 result
TrustyJules posted a topic in General BoardWhat drew me to this site was Kim professing to apply strategies or trading philosophies as set out in Jeff Augen's books. Besides many things posted on here he also devoted some chapters to stock pinning, i.e. on expiration some stocks tend to gravitate towards a particular strike price. AAPL was and is an example of a stock that often pins to a strike. Jeff did his research on 3rd Friday expiries but I thought to test his theory today for a bit of fun. The actual pinning effect is something I verified by charting minute by minute quotes for AAPL over two years. You get charts like these: Here you see the stock quote from March last year with the Y axis showing how far ($) away from the closest option strike the stock was and the X axis the number of minutes since trading started that day. This plunging chart is very frequent with AAPL as - from the stocks I was able to acquire minute by minute data from - it is the stock that most consistently shows this behaviour - it only failed twice in two years roughly (based on 3rd Friday expiries). Anyway I could never make use of this with my European broker because profits are small and trading is frequent - with minimum 36$ to open and close a position this wasnt feasible. Now I switched to a US broker this became a possibility. So for fun I tried this today on a non 3rd Friday expiry and I can say AAPL duly obliged: I picked up the trading at 11.40 AM EST - you can start earlier but this is usually a midday lull that creates a stable time to open your position. The strategy is to use ratio trades to make profits on low capital investment. The stock was around 208.40$ and in line with the strategy we guessed that 207.50$ mark would be the close hence OB 1 C 205 @ 3.34$ and OS 4 C 202.50 @ 0.93$ for a net credit. The stock duly obliged and tumbled; in fact below 207.50$ to 206.80$ or so by which time I closed the trade. Now we retained the theory that at close it would be 207.50 so this time we did a different ratio and sold the 2 C 202.50 @ 4.55$ and bought 4 C 205 @ 2.03 again for a net credit. AAPL proved particularly tractable and by 4.20 PM EST it was trading around 207.85$ so we closed. The 0.40$ credit on the 207.50$ calls beckoned again. Therefore we repeated the setup of the morning except this time of course the trade was a net debit. I watched smugly as AAPL duly converged back down to the strike price - with 9 minutes till session close I was reckoning to close at the last minute. Except... my internet went down at that moment with 4 ITM shorts! Slight panic - router reboot and thank goodness Internet worked again (ouf!) I closed out immediately just in case another gremlin would be thrown up. In doing so I gave up a little profit as AAPL closed at 207.53 $ like a champ of pinning. Profit from all this excitement: $ 362 after commissions - the capital outlay was never more than 2K (but this is a slight cheat because I have an AAPL long position in my portfolio) - anyway 18% in the day and a good bit of fun with a slightly unpleasant bit of excitement toward the end!