Option Pinning Friday!

Feb. 11, 2011 7:47 PM ETSPY, IWM
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Contributor Since 2009

My name is Trevor Vernon and I created BookingAlpha in response to the events precipitated from the financial collapse of 2007-2008. After years of generating additional wealth for already wealthy individuals through my hedge fund and various other holding companies and financial activities, I had a wake up call. Witnessing family, friends, and complete strangers being adversely affected ,and many totally devastated, by the ripple effects of the collapse affected me in a way I didn't know that it could. The greed, complacency, and morally corrupt financial system that it is Wall Street cause this devastation to occur. What's worse was I realized I was a part of this. I toiled sucessfully for years to perpetuate an industry of thieves, liars and cheats; and it was all coming home to roost. I was mortified and ashamed to be associated with such a farce. I founded BookingAlpha to provide never available before access for REGULAR investors to the world of Hedge Fund investing and its out-sized returns. The strategies I and other hedge fund managers use to generate consistent returns for wealthy clients are very much an art and science reserved for the Fat-Cat Boys Club of Wall Street. Buy and hold is dead for stocks proving long term investing is a joke, and mutual funds are probably the greatest wealth generating industry for everyone EXCEPT the actual investors in the financial universe.
BookingAlpha subscribers got to experience "Pinning" or "Pin Risk" during Friday's weekly Options Expiration.  Pinning occurs when underlyings are drawn like magnets to a particular strike price, closing on or very near that strike.  Volume and Open Interest are usually the culprits and the only indicator of Pinning.  Unfortunately, Pin Risk is not something an option trader can forecast or predict as it typically only becomes evident during Expiration Day.  Instead, we must react when the elusive beast shows its ugly head.
 
Friday, subscribers went into weekly OpEx with open IWM and SPY Iron Condors.  The call spreads of the Iron Condors were out of the money (which is a good thing and what we want) but the market continued to grind higher throughout the day.  No real volume or events other then Egypt's Mubarak stepping aside existed and the markets were at multi year highs.  There was no real reason for the market to continue to advance higher, but it did. 
 
Volume far exceeded open interest of our short calls mid-day Friday which is about the only heads up an options trader gets that Pinning may occur.  Our call spreads were held through the day to allow the premium spike existing Friday morning to decay and reduce the price at which we had to buy back our short optoins.  During the last 2 hours of trading the call spreads were closed to avoid potential assignment if the options were to close In The Money. 
 
Fortunately, the put spreads of the Iron Condors expired for full profit and offset the marginal losses incurred on the credit spreads.  In whole, the SPY & IWM Iron Condor positions netted to be profitable.

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