As I mentioned, Steve Smith has some thoughts on this Expiration Pin Jam piece.Although it acknowledges that natural hedging causes the strike to act as a magnet, the article, without any data, example or evidence, suggests that something much more sinister must be at work. The ultimate conclusion being that the big Wall Street firms that write or sell options are "manipulating" the stocks' price by buying or selling the underlying to get the stock to settle at a price favorable to their option position, namely to get their short options to expire worthless.
While "pros" may engage in many questionable and underhanded practices going on in the trading world pinning action is not one of them.
And it certainly is not the reason "so many option traders lose money" or an example of "an uneven playing field" or the reason "unsophisticated investors should be wary of trading options" as the article ominously warns.
Totally agree. Among the reasons that "so many option traders lose money" is that they make such mistakes as 1) mis-analyzing the true risks of deep call purchases. 2) Buying options in general when they like a stock and not factoring in the time and volatility assumptions associated with the purchase and 3) buying options as "insurance" against your neighbor bragging at a dinner party that his portfolio has done better than yours and 4) holding options into expiration day in the first place and just crossing your fingers and hoping it works out ok.
But no one in their right mind would give such bad advice, lol.
The more I read over this article, the more ridiculous it seems. The whole conclusion is based on this finding.
Consider how often a stock closes within 12.5 cents of one of its option's strike prices. On all days other than the expiration date, the researchers found, this happens about 10.5 percent of the time. But on option expiration days, this frequency jumps a full percentage point, to around 11.5 percent. That suggests that option strike prices are acting like magnets, drawing stock prices toward them.
And the assumption that the simple natural forces behind expiration pinning do not account for this. With no evidence to support that thought.
Just ridiculous.
And speaking of ridiculous, how much does CNBC pay Charlie Gasparino to transcibe every word Ken Langone and Dick Grasso say? I came into this supporting them, but any more of this "reportage" and I may rethink it. This is what passes for investigative reporting?
9 comments:
so what don't buyers understand about deep in the money calls?
that those "20% returns" when the stock lifts like a point or two imply 20% losses when the stock dips by a similar amount.
too funny. i guess thats why they work for the university of illinois and not the university of chicago.
About the pinnage.
Regardless of what anyone might think about whether this is manpulation or not, isn't a stinking 1% jump in occurance, well, just a stinking 1%?
I would think , if this was a serious issue, that it would go from 10% to something like 15-20 %. No?
Actually, I'm surprised they claim its only 10%, maybe 12 cents is too small a band to measure the effect?
yeah, a better study would maybe be to see whether prices are generally more clustered near strike on expiration then normal, something like that.
Their results are pretty underwhelming
Speaking of Ken Langone and Dick Grasso ...
I really admire Ken Langone for his determination regarding this matter. He feels as though he is right and he's not going to stop until he clears his name
I honestly can see his point, against my better judgement, lol. Gasparino's breathless "updates" make it tough for me to pull for him though.
I've always thought the facts were with Grasso and Langone. Spitzer is spinning his wheels.
Evidently, Gasparino is under contract as a mouthpiece for the downtrodden of New York. That's how I think of Grasso and Langone. How about you?
Notice how Grasso got such a kick out of saying the big board would be paying for college tuitions with the money they owed him so much that he repeated it with pride? I guess it's an attempt at some good press (and it may appear that way in print), but on television his manner lets people know it's his version of twisting the knife. He can afford to come off that way on national tv thanks to the NYSE financial package.
Publicity stunt or not, if the children of NYPD and FDNY dead do end up getting tuition money, there will finally be individuals to pull for as a result of this case and maybe Gasparino will find time to cover more important things to CNBC viewers--like that Enron trial that has captivated Adam on a daily basis.
-a
i do think grasso has a good case, oddly.
But what will Charley do next? I guess he can start cozying up with this UNH guy, lol.
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