• Apple Computer – Expiration Friday

    by  • January 18, 2013 11:22 am • Quick Hits

    On expiration day, option traders are in tune with the potential for “pins” to occur, in which a stock, index, or exchange-traded fund closes right on (or within a few cents) of a strike price.   That said, Apple Computer (AAPL – $499.24) is currently trading around a key round-number, century-mark level, where a 500-strike pin is quite possible by 4:00 p.m.today.

    For sellers of AAPL options, a close at $500.00 or within a few cents of $500 would be optimal, as both put and call open interest at this strike dwarfs open interest at any other strike in the January series. For option buyers, a $500 close would be the point of maximum pain.

    Below AAPL’s January open interest configuration chart is a Friday regular expiration closing history since 2010.  In 22 of the 36 past regular expiration Fridays, AAPL has closed within a $1 of one of its five-point strike intervals.  I chose $1 because it is such a high-priced stock,and premium sellers at that strike likely win in such a scenario.  The 22 of 36 pins, or 61-percent probability, is high, since the expectation is that AAPL closes within one point of a five-point strike only 40 percent of the time.  The take-away is there is a high probability of a pin, and if you are betting on where this pins occurs today, $500 would be the bet, given it is a round-number strike in which premium buyers feel the most pain.

    Apple – January Open Interest Configuration

    AAPL – Friday expiration closes since January 2010

    About

    Todd Salamone is a graduate of The Ohio State University. As Senior Vice President of Research, he oversees the strategies and analysis used in supporting Schaeffer’s various option recommendation services. He is the author of the company’s weekly e-newsletter, Monday Morning Outlook, and a contributor to Bernie Schaeffer’s SENTIMENT magazine. With more than 18 years of trading experience at his command, Todd manages numerous alert services for Schaeffer’s, and has introduced many sentiment-based indicators to its subscribers. Todd has presented option strategies to retail investors in cities throughout the U.S., and is a frequent commentator on financial markets via print, radio and television, including CNBC, The Wall Street Journal, and MarketWatch.

    http://www.schaeffersresearch.com/

    • sz_sinoman

      The company you are referring to is called Apple Inc. There is no Apple Computer, and there hasn’t been one for quite some time. Knowing the name of the company will add to your credibility.

    • Mark

      Thanks Todd – this is very valuable information. Do you feel the pin is related to potential hedging/un-hedging mechanics related to option sellers?