“She only played one night stand” – Day Tripper, The Beatles
On weekly and monthly option expirys, stocks are oftentimes propelled and “pinned” to what seemed way out of the money strikes the day before expiration.
This is referred to as pin action.
It is where big percentage gains can be made by gaming stocks as big players take large positions in puts or calls and then push the stock in the desired direction.
As my dad, Jack Cooper, who had his own hedge fund and was a great tape reader, used to tell me when I was growing up and before I had any clue as to what he meant, “Stocks don’t move, they are moved.”
The tail often wags the dog into Friday option expirations.
Let’s look at two examples.
On Friday before the open, on the Hit & Run private Twitter feed I flagged a square-out on PTON, which had reported the night before and was spiking higher.
The Square of 9 image below displays how the 100 region is 3 cycles of 360 degrees (3 full squares) up from PTON’s 17 March low.
PTON spiked to 100 pre-market and reversed bit league, closing at 84.
The 95 puts on Friday morning were trading at 1.10 and ballooned to over 12.
A 10 min PTON for 3 days including last Friday’s option expiration walks through the action.
The important thing to notice is that following a down ORB (Opening Range Breakout… trade below the 1st half-hour’s low) PTON soon triggered a Jump the Creek sell signal — offsetting the open up gap.
This all occurred around the 90 strike. When PTON broke 90 decisively late in the day it caved to the next lower strike at 85.
As well, on Friday’s Hit & Run private Twitter feed I alerted members that if FSLY snapped 80 it would drop to 75.
The following 10 min FSLY for Thursday/Friday shows FSLY backed and filled around the 85 strike on Thursday before dropping to the 80 strike.
Once FSLY snapped the 80 strike on Friday, it tobogganed to the 75 strike.
Often following these Pin the Tail on the Option Expiration Donkey plays, the setup must be unwound the next Monday.
Sure enough, FSLY exploded back to 83.50 on Monday and early Tuesday it is trading at 85 for a round trip.
So, there are sometimes two setups to Option Expiration Sweepstakes.
Let’s take a look at a setup that looks like it may be in play this week.
GDXJ triggered a Rule of 4 Breakout on Monday on trade above a declining 3 point trendline.
It looks like it’s on a trajectory to the 65 strike, which ties to its 66 August high.
We suggested members go long GDXJ on Monday based on the setup with the idea that this junior gold-miner index could see Pin Action to 65 by Friday.
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