Pinning effect on Google?

Discussion in 'Options' started by mizhael, Feb 23, 2009.

  1. I thought there is Pinning effect on option expiration day, but it was not obvious on Google on Feb. 20 (last Friday).

    On Friday afternoon, I thought GOOG was going to pin down to $340, but it actually started to drift to $350, reaching $349 at some time in the afternoon, and then finally settled down at $347.

    Where is the Pinning effect? The Pinning effect was not obvious on many other stocks too. What happened?

    Any thoughts?
  2. In an experimental trade, suppose you originally sold a straddle at $340. How would you adjust your position as it drifted to $350 and finalized at $347?

  3. Pinning is one of those myths that refuses to go away.

    There have been studies that show that there is a small effect that tends to shift the price of a stock towards a strike price, but the effect is very small and certain conditions must apply (such as very large open interest.

    Your GOOG example: You chose the wrong strike. The 350 was a better choice. But how could you know that in advance?

    Forget pinning. It's not a tradeable idea.

  4. spindr0


    As Mark indicated, the Pinning Effect is a myth. Many talk about it on these and other BB's but no one ever gets it right until after 4 PM on expiration . Stocks do get pinned but not outside the normal distribution of stocks across all prices.
  5. MSFT ended up at 18.00 for the Feb. 09 expiration.
  6. One stock in thousands, can you come up with more? And how about posting examples before expiration.
  7. spindr0


    There are just short of 3,000 optionable stocks. A normal distribution will place dozens within 5 cts of a pin at each strike. A few will even pin to the penny. And a similar number will be found 10 cts away and 20 cts away, etc. and even mid strike.

    If you plot all of them, you're not going to find an abnormal distribution on any kind of regular basis.

  8. Sure it is a tradeable idea. Buy a straddle, hold to expiration and I guarantee the stock will get pinned to the middle of it every time... lol.

    I only noticed the "pinning effect" when it was negative towards my position, like when you are long calls and wanted the stock to shoot up through the strike to get in the money during the last week and the stock seems to want to meander around the strike and all volatility dies, especially on the last day or two.

    But it is basically a myth in the sense of predictability and profitability.....