this is something which we have heard a lot.. max pain theory.. and many others.. My observation is that stocks tend to flucutuate around a set price and it makes sense, for example if in 4 weeks a particular stock has stayed in a 5$ range, then on the last day. why should it break out if that interesting WSJ article * The Wall Street Journal * OPTIONS * NOVEMBER 20, 2009 Pinning Down Stock Prices Using Options By TENNILLE TRACY NEW YORKâShares of Intuitive Surgical have a better-than-average chance of closing Friday's session near $280, according to a recent analysis of the company's options. Because of a phenomenon known as "pinning," shares of Intuitive Surgical and a handful of other stocks could end Friday's session at predetermined prices, due in part to professional market makers who own large amounts of options at those levels. In the case of medical-equipment maker Intuitive Surgical, market makers appear to hold positions in November $280 calls and November $280 puts, according to an analysis by SociÃ©tÃ© GÃ©nÃ©rale. As a result, they could buy and sell large amounts of the company's stock to hedge those positions, increasing the odds that Intuitive Surgical closes Friday at that price. Intuitive shares ended Thursday at $278.68, down 95 cents, or 0.3%. [OPTIONS] There are several other companies whose stocks could be affected by pinning, according to SociÃ©tÃ© GÃ©nÃ©rale. Among them are Oshkosh, whose stock could close near $40; Southern Co., whose stock could close near $32; and Plains Exploration & Production, which could end the session at $28. Research In Motion could close at $60, and Celgene could close at $55. Pinning, or "pin risk," has existed for years. But its effect on the stock market has grown as options have become more popular. Pinning refers to situations in which market makers inadvertently push a stock toward a certain priceâor "pin" the stock to a certain priceâas a result of their hedging activities. Here's how it works: When market makers buy options, they often hedge themselves using stock. When they buy call options, for example, they sell stock. And when they buy put options, they buy stock. When the options are about to expire, as they will on Friday, market makers buy and sell thousands of shares of stock to adjust those hedges. In doing so, they inadvertently push the stock toward the strike price of the options they hold. In other words, they "pin" the stock to a certain price. There are various reasons why options traders keep track of pin risk. Some try to use the information to make money. Armed with knowledge of where a stock could close on expiration day, they sell "straddles" in a companyâselling equal amounts of both calls and putsâhoping to make money on options that could expire worthless. Other traders use the information to make more informed decisions about their holdings. "Everyone who has an options position going into expiration could be impacted by this phenomenon," said Vincent Danre, a quantitative analyst at SociÃ©tÃ© GÃ©nÃ©rale who composes the monthly report on pin risk. Attempts to determine which stocks could be pinned, however, are far from flawless. When Mr. Danre scans for possible candidates, he doesn't know whether market makers are long or short the at-the-money options, a factor that plays a huge role in determining whether pinning will occur. What's more, Mr. Danre notes that he can't account for external eventsâsuch as quarterly earnings or ratings changes that might affect stock prices on any given day.