• Trading 101: Are These Stocks Set to Pin Today?

    by  • June 21, 2013 9:37 am • Trading 101 with Peter Bryans • 0 Comments

    Options expiration for June is today, and that means we are quite busy around here. With the recent market sell-off, a lot of stocks have experienced some serious weakness but may be ready to slow down a bit today. Below, I have the current open interest configuration for three stocks, and some charts to show where I think they are likely to close today. As a reminder of how the phenomenon that is “pinning” works, you can read about it from a past blog post here. All of this data is as of the close yesterday, 6/20/13.

    Tech firm Adobe Systems (ADBE) held up relatively well despite the huge sell-off in the market yesterday. Per the open interest (OI) configuration below, you can see that the greatest amount of both call and put OI resides at the 45-strike. The 45-strike is more call heavy, than put heavy, and this could continue to act as resistance today. A close below $45 is very likely today, as those who are short the calls are likely to sell the stock they purchased as a hedge when the options were bought-to-open. This could create resistance around the max pain strike of $45, as more supply comes into the market towards the end of expiration Friday.


    (courtesy of eSignal)

    Dow component Du Pont (DD) specializes in chemicals, and is a huge firm with a market cap of nearly $50 billion. DD has made a nice run in 2013—it boasts a year-to-date gain of nearly 19 percent. With yesterday’s ~350 point down day in the Dow Jones Industrial Average (DJIA), DD has approached its max pain strike of 52.50 for June expiration. You can see from both the chart and the OI graph below, that should DD expire very near this level, it is where option buyers stand to lose the most.


    (courtesy of eSignal)

    Finally, we have online travel firm Expedia (EXPE). EXPE sold off to near the $55 level over the past few weeks, but has shown some nice relative strength in the market. EXPE bounced all the way back to the round number $60. The interesting thing about the 60-strike for June, is that there is nearly an equal amount of both put and call open interest at this level. This makes pinning even more likely, as those who are short either the puts or calls are short the stock as a hedge for the puts they sold—or they are long the stock for the calls that they sold. This could create a “battleground” near this level, especially if EXPE doesn’t experience any strong upside or downside movement in the early hours of trading.


    (courtesy of eSignal)

    Pinning is never a certainty, although it feels as if this likelihood increases throughout the trading day. Be on the lookout for these few stocks, and try to get a “feel” for how you think they will trade throughout today’s market session.


    Peter Bryans joined the Schaeffer's Investment Research trading team as a Trader in April, 2012. A graduate of the Fisher College of Business at The Ohio State University -- where he concentrated in Finance -- Peter previously held internships with an insurance broker and a wealth-management firm. In his current role, Peter trades a variety of our real-time option services and also hosts our "Options Apprentice" weekly webinar presentations.


    Leave a Reply