I got robbed on option expiration Friday!! (option ex pinning)

Discussion in 'Options' started by sub0, Oct 17, 2009.

  1. sub0


    Son of a bitch! I bought some BAC puts betting on them missing earnings. They missed earnings and it started to tank. Immediately I started to get excited that I was right! The stock dropped and based on past trends, I figured it would drop at least $2 on the miss.

    Well it didn't, it dropped $1 and then traded sideways from the open all day long in a tight range.

    look at this shit! From open until close after missing earnings....

    Everyone on the BAC forum realized and pointed out that the market maker was pinning it so the large block of calls and puts above and below the price would expire worthless! SON OF A BITCH I WAS ROBBED.


    Just posting this here to vent on this BS manipulation. Someone on the BAC yahoo finance forum pointed out that the same thing happened the last 2 option expirations on BAC and on Friday the same thing happened to the options on GE.

    All I know is I'm a licensed market maker and pinning and pegging is illegal for market makers also, not just for regular traders! The only time you can legally peg a stock is when it IPOs to help stabalize prices as you dump shares into the market at a certain price that day.

    I guess I was a moron for not researching these pinning practices further before holding a position over night like that into option ex, won't do that again!
  2. sub0


    Incase you guys are wondering what it looked like, it was a really large block backed by smaller blocks. I've rounded the numbers off.

    BID 17.05 /17.10/17.15/17.20

    ASK 17.40/17.30/17.20


    So it was basically a $4 million dollar block with smaller $1 million dollar blocks behind it. They weren't filling the orders, they would put them up and let it eat at it some as the market stalled and then pull it occassionally. It was clearly pegging if you watched the time and sales, they weren't putting the orders up to actually try to get them filled but to peg it. They did this all day long from open until close.
  3. CET


    Knowing that pinning was a good possibility on expiration, why didn't you by November puts?
  4. did your license come from a bubblegum machine? what professional trader doesnt know all about expo-friday reality?
  5. wayneL


    I'm not an MM, but as it was explained to me it may not be anything more sinister than option MMs hedging their delta with underlying that causes pinning.

    As a retail trader, my observation is that sometimes it pins, sometimes it doesn't.

  6. You honestly believe <$7MM per side in shares is going to move $150B in mcap, and a float of nearly 9B shares? Worse, you're stating it wasn't fills, but spoofing? You bought October on reporting day on expiration!

    It's a MM-bot, nothing nefarious, and certainly not impacting the market in BAC.
  7. sub0


    It's possible I'm over-reacting, but I find it suspicious that it could trade all day long in that range from open to close on earnings day and on a day they missed earnings. I think this will be verified come Monday with a sharp correction in the stock after it's "unpinned".

    I think some people forget that just because there is a large market cap or a lot of shares, only so many shares trade on an average day. If you break it down even further to the minute, it takes time to even move the shares and whenever a large order is put up, it takes time to break it down because there are only so many buyers/sellers at that given point in time.

    220,000+150,000=470,000+ shares placed on each side at any given time within a range of 30 seconds to 10 minutes.

    avg daily volume: 237,096,000
    avg hourly volume (dly/6.5hrs): 36,476,307
    avg 10 minute volume (hrly/6): 6,079,385
    avg 5 minute volume (10min/2): 3,039,692
    avg 1 minute volume (5min/5): 607,938
    avg 30 second volume (1min/2): 303,969

    As you can see, it takes on average over 30 seconds to a minute in a fast moving market to clear that many shares. It obviously isn't going to stop for a solid 30 seconds to a minute so it ping pongs it back and forth within a range. This average volume doesn't even include the fact that most volume occurs at the open and close, making it even easier to manipulate it in between with these actions. It also shows that within the most active periods of the open/close it got outside of their control slightly as they agressively tried to pin it down. In between it was quite centered.
  8. GTS


    If you think that is true why didn't you short the stock Friday, sounds like free money come Monday.
  9. sub0


    After you get burned on something like that, you tend to back off for a while. Not interested right now, just stated we'll see come Monday how pinned it was if at all.
  10. sub0


    Even if we are conservative and say they were stepping in only every 5 minutes...

    avg 5 minute volume (10min/2): 3,039,692

    If within 5 minutes they spoof the buy side then later the sell side, that's 370,000x2=740,000

    So within 5 minutes, they are indicating 25% of all the volume and price direction if the spoof just every 5 minutes. That's how significant it can impact it.

    Not to mention, very few people can slice through that kind of wall buying/selling/trading $5-$6 million dollar blocks. And those that can, are smart enough not to try because they don't know what is behind it if they do.
    #10     Oct 17, 2009