Was Iceman's "pin this, pin that" prediction completely off on TIE? http://finance.yahoo.com/q/bc?s=TIE&t=5d Thanks!
$35 was a coincidence. I'm not going to repeat the entire explanation, but it's analogous to GOOG moving $55 on the last trading day of the cycle and "pinning" to the 435-strike. TIE closed at $30.50 last Thursday. That's not pinning.
I am not here to win the pinning argument. It's simply that I cringe when I read ill-informed opinion passed-off as fact.
I bought 10 ADI Call 35 June at 0.7. I am sure (???) it will be profitable. I am happy with a small profit. Like 30%.
opinions vary... but over the years there is NO doubt that stock and index prices close at levels that are beyond coincidence or random walk. But so what? If you can't make it an "edge" then why bother worrying about alleged pin levels! I have been able to make some money over the past 15+ years with expiration plays. If nothing else at least open interest clues one in as to where expiry week action will "LIKELY" occur, i.e. range. As always you must be flexible in order to use this insight (O/I) to the best advantage! It's like any system - some can use it and trade it to best advantage-- others could not even if they were spoon fed! Further the more who recognize this anomaly (if that is what it is) the less likely that it will continue to be a reliable indicator or edge! Pay attention next expiration to your favorite underlyings, and after checking O/I, note whether the trading during expiry week and maybe a day or two in the prior week seems to fit any pattern that is exploitable! Remember June is multiple witching, and in my view the quartely expiry are the most exploitable!. The Mystery of the Stock Price and the Strike Price E-MailPrint Reprints Save By MARK HULBERT Published: May 7, 2006 So many options traders lose money that they have grown to suspect they are not operating on a level playing field. A recent academic study provides them with some potentially powerful ammunition. Graphic: Happy Expiration Day The study, "Stock Price Clustering on Option Expiration Dates," appeared last October in The Journal of Financial Economics. Its authors are Neil D. Pearson and Allen M. Poteshman, both finance professors at the University of Illinois, and Sophie Xiaoyan Ni, a Ph.D. student there. A version is at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=519044. The researchers focused on unusual trading patterns of stocks when options on them were expiring. They found an increased likelihood that a stock would close on the options expiration day at or very near the strike price of one of its expiring options. A strike price, of course, is the price at which an option's owner can buy the underlying stock (if the option is a call) or sell the stock (if the option is a put). A stock typically has options with many different strike prices, set at regular intervals â every $5, for example. Options also vary by month of expiration; all of a given month's options expire on the third Friday. In effect, the researchers found that the closing prices of stocks that have options were not randomly distributed on expiration days, but instead tended to cluster around the strike prices of certain of their options. Consider how often a stock closes within 12.5 cents of one of its option's strike prices. On all days other than the expiration date, the researchers found, this happens about 10.5 percent of the time. But on option expiration days, this frequency jumps a full percentage point, to around 11.5 percent. That suggests that option strike prices are acting like magnets, drawing stock prices toward them. This clustering may not seem a big deal, but the researchers say they are confident that it can't be attributed to chance. And the dollars involved are substantial. Some investors' portfolios will increase in value on the expiration day because of the clustering, while others' portfolios will suffer. The researchers estimate that for the average option expiration day from 1996 through 2002, these portfolio shifts totaled at least $9.1 billion. On an annual basis, this amounts to more than $100 billion. Could the cause of this clustering have nothing to do with options expiration? The researchers believe not, since they were unable to find a similar pattern among stocks for which no options exist. They also examined what happened to these stocks when and if options began to be traded on them. They found that clustering generally appeared almost immediately in these stocks' trading patterns on expiration days. This clustering does not automatically mean that these stocks are being manipulated, the researchers say. It could also be caused by straightforward hedging transactions that are regularly undertaken by market makers on options exchanges. Marty Kearney, senior instructor at the Options Institute, the educational arm of the Chicago Board Options Exchange, said he believes that these market makers' hedges cause the bulk of any price clustering on options expiration day. The study's authors don't disagree that market makers play a large role. But they found that the market makers' activities could not fully explain the clustering. They say it is likely that manipulation is also taking place. Who would have an incentive to manipulate stocks this way? One group would be those who sell options short, known as option writers. Traders in this group in effect are betting that the options' underlying stocks will rise (in the case of puts they have sold short) or fall (in the case of calls). They could lose big if these stocks move too far in the wrong direction. You would need to be a very wealthy investor indeed to be able to buy or sell enough shares of a stock to move its price in a given direction. But the researchers believe that some would qualify. They focused special attention on a group known as firm proprietary traders, which includes employees of large investment banks who are trading options for those banks' accounts. The researchers argue that these traders would be in a position to manipulate stock prices by selling large numbers of shares whose prices they wanted to keep from rising and by buying other shares whose prices they wanted to support. The researchers say that it is impossible to identify any particular firm that may have engaged in manipulation because they had access only to aggregate data for firm proprietary traders as a whole. Even if they did have data for individual firms, it would still be hard to prove that any one of them specifically engaged in deliberate stock manipulation, which would be illegal. Such proof would depend on demonstrating what the firm's traders were intending to do when buying or selling stocks on expiration day. And there is no shortage of plausible explanations that those traders could provide for their behavior. In an interview, Lawrence E. Harris, a former chief economist at the Securities and Exchange Commission and now a finance professor at the University of Southern California, says the difficulty in proving manipulation is probably an inherent feature of modern markets. "Because the markets are so complex," he said, "it is relatively easy for traders engaged in manipulation to offer alternative explanations for their behavior that would make it difficult to successfully prosecute them." Professor Harris nonetheless said that "when presented with the data suggesting manipulation by firm proprietary traders, it's reasonable to expect that the S.E.C. would consider investigating the matter further." The S.E.C. had no comment on the researchers' study. At least two major lessons can be drawn from the study, according to Professor Harris. First, he said, "there are limits to what the S.E.C. can do to protect you from the actions of clever traders who arrange their trades to put you at a disadvantage." The second, he said, is this: "Unsophisticated traders should be wary of trading options."
thirst, do you have any new positions? And are you still holding June TXN options? Good luck to your trading!