• Trading 101: Potential Names Set to Pin?

    by  • September 20, 2013 9:09 am • Trading 101 with Peter Bryans • 0 Comments

    It is options expiration today, and so we are rather busy around here. In the past, I have discussed the phenomenon that is “pinning” and how it can relate to trading. You can find a prior post that highlights a strategy one can utilize if you are certain that a stock is set to close right at (or near) its “max pain” strike. The “max pain” strike is the strike where options¬†buyers¬†stand to lose the most, should the equity expire exactly at this level. Let’s take a look at several names that are trading very close to large amounts of open interest (OI), and determine if they are going to “pin” there today. Keep in mind that should we have a rather “slow” day in the market, then these names are more likely to move very little as market makers pressure the stock toward the strike where they stand to benefit the most.

    McDonald’s (MCD) has been struggling to take out that $100 level lately. The equity closed at $97.92, and the strike that has the largest amount of OI resides at 97.50. Below, I have a chart, as well as the OI configuration for September. Remember, these options expire today, so it will be interesting to see if MCD closes at (or near) this level.

    (courtesy of StockCharts.com)

    Healthcare firm Johnson ‘n Johnson (JNJ) is on a tear this year. The equity is right at that $90 level–which is also the site of heavy call and put OI. I wouldn’t expect any big movement from this name today.

    (courtesy of StockCharts.com)

    The last name on your list should be industrial firm, Deere & Co (DE). Deere has been moving sideways since early July, and the equity continues to struggle with that ~$85 level–also the “max pain” strike. A close around here is very likely today.

    (courtesy of StockCharts.com)

    Remember, you can use this concept to your advantage in trading. If you happen to be looking at any of these three names as potential plays (either on the long or short side) then it is good to have some awareness regarding the open interest configuration–especially on options expiration. A deeper understanding of the options market is only going to help you with your trading.

    Good luck out there.


    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.


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