Expiration

This past Friday, the 18th of June, was options expiration. Actually, to be technically correct, the options expired Saturday the 19th but the last day to trade those options was Friday.

A phenomena occurred Friday that I want to discuss. This phenomena is called "pinning." Pinning occurs when a stocks price is driven to a specific options strike price. The reason for this is to drive out the value of all long holders of calls and puts at that specific strike price. The corollary to this is that if you are short calls and puts at this strike you will be able to cover for nominal amounts prior to close or let the options expire worthless. Naked shorting of calls and puts is a tricky and sometimes dangerous game but if you are observant of pinning you can take advantage of this phenomena and reap the rewards.

An example of pinning from this past Friday is Google. GOOG closed at $500.03 on Friday after opening at $502.51 and trading to a high of $503.47 and a low of $498.13. If you were short the $500 strike calls and puts of GOOG you were able to close those shorts in the waning minutes of the day for $.10 to $.15 a contract. These calls and puts, just the day prior, were trading for $2.50 and $3.00. That is the difference to be made, per contract, if you were aware of GOOG being driven to $500 strike and were taking advantage of it. I think that the institutions try to pin frequently but other market participants contribute volume that they cannot make up for or mitigate. It happens enough though and is so profitable that it will contribute handsomely to your trading profits if you can take advantage of it.

USA vs Slovenia

I have been wiped out this week with the worst cold of my life. The couch and bed upstairs have pretty much been my confinement. This has provided me with the opportunity to watch just about every game of the World Cup. At the risk of provoking ire from the soccer community, it's a great game to watch when you aren't feeling well. I would doze off for a nap, wake up, and chances were very good nothing had happened. Seriously, it's so difficult to score. Not sure how to change that without making it too easy to score. My second thought is that the penalty for infractions is way disproportionate to the offense. The accidental hand ball by the Serbian (?) player resulted in a penalty kick which resulted in a goal which resulted in a loss of the game. That seems ridiculous. I realize I don't know a lot about the game and that hitting the ball with your hand is a serious offense. But even if that is the most egrigious offense you can commit, having it result in an almost certain loss for your side seems a bit extreme. Last but not least I would like to see more yellow cards for diving. In particular, the serial offenders like Portuguese striker Ronaldo who goes down, according to one of the announcers, "with a puff of wind" need to be booked out of the game. With all that been said, I am on my coach, in front of my tv, watching: GO USA!!!

The Blahs

I'm a bit under the weather to start the week. I would like to make a quick comment now that the primaries have been decided. Meg Whitman is yet another Republican that thinks a government can and should be run like a business. It can't. Nor should it be. She is also contemptuous of government as evidenced by her disgraceful voting record, yet now wants the top post. I mean, what an insult to all the courageous veterans that have given their lives for our right to vote that she tarnishes by viewing voting as being beneath her and not worth her time. She is despicable. Proposition 13 destroyed our school system here in California and to refuse to discuss it with respect to solving our budgetary crisis is lunacy. Our budget mess will not be solved with spending cuts alone. It is very disappointing that the Republicans could not put forth a more worthy candidate.

Inaugral Post

I have been options trading for quite some time now and I have finally decided to start writing about it to see if I can articulate what I do in hopes of (at some point in the future) write a book. The goal being to help people with their trading, and, in return, to garner ideas from readers that will help me. My title is a cornerstone of my trading philosophy and something I think is so important that it cannot be overstated. More on that in the future.

I will attempt to talk about each of my trades and positions, and the rationale and strategy behind those trades and positions. My focus will very much be on the closing side of whatever the open position is as I feel that the "sell" or closing decision is not highlighted within the financial services community. There is much emphasis on the buying of a security and in staying long a security and I hope to balance that with assistance for the sell side and for shorting. I specialize in naked short selling of calls and puts and I will talk a whole lot about when to close those positions.

This blog will also contain discussions about politics and current events and other topics of interest to me and to my readers. So, welcome, I very much look forward to the evolution of this blog.

DV