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
(NASDAQ:AAPL) 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 $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% probability, is high, since the expectation is that AAPL closes within one point of a five-point strike only 40% 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
Click to enlarge
AAPL – Friday Expiration Closes Since January 2010
This article by Todd Salamone was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.