Often on Expiration Friday, you will find that certain stocks, indices, & ETFs get basically "stuck" around a certain round level that corresponds to an option strike price.
Why does this occur? Well, there are a variety of factors ... and it is not usually just comprised of pure "market manipulation" as many think.
If a stock is lingering around a strike price, the expiring open interest there (especially if it is sizeable) may cause market makers to constantly be buying and selling around that level, esentially causing the stock to get pinned. This is because market makers are usually hedging their delta (and gamma), and their front month option greeks will be changing as a stock osciallates around a strike price.
Another factor is that there may be a great deal of options trading hands around that strike price, which then causes the market makers to hedge with stock trades, as well. There also is the psychological factor that traders and stocks are often drawn to "round" numbers such as strike prices, and there will be a significant number of buyers and sellers around that number, for example. Also, many of these round areas are important from a technical perspective and may be the location of important resistance or support.
With that in mind, there certainly is a "pinning effect" that is often seen on Expiration Fridays. This may be option related and may be "released" from the shares on Monday (but that is certainly not guaranteed). Taking a quick scan of stock screens, here are some that jump out at me today that ended very close to strike prices:
Google (GOOG) - 430 strike
Citigroup (C)- 3 strike
Pfizer (PFE) - 15 strike
Bank of America (BAC) - 13 strike
Caterpillar (CAT) - 34 strike
Yahoo (YHOO) - 17 strike
Baidu (BIDU) -320 strike
Dish Network (DISH) - 16 strike
First Solar (FSLR) - 145 strike
SPDR Gold (GLD) - 92 strike
Mastercard (MA) - 180 strike
Wells Fargo (WFC) - 25 strike
IBM (IBM) - 115 strike
McDonalds (MCD) - 57.5 strike
JP Morgan (JPM) - 37 strike
Tag >> BAC
With the S&P 500 (SPX) sitting right around the key 880 level, get braced for July Option Expiration next week, as well as a gaggle of earnings reports from some big names.
Among those due on the docket:
Monday: CSX, FAST, NVLS
Tuesday: ALTR, GS, INTC, JNJ, YUM
Wednesday: ABT, AMR, CTAS, XLNX
Thursday: BAX, BIIB, CY, CYT, GOOG, HOG, IBM, MAR, NVS, PPG
Friday: BAC, BBT, C, GE, MAT
We get the Fed announcement on Wed, then later in the week Chairman Bernanke will testify about the whole BAC/MER mess that occurred last fall. The first part is mostly dressing...we don't expect much from the Fed other than to say they could keep on buying treasury bonds, helping to keep rates low. The testimony in front of Congress is going to be interesting. What role did Bernanke play? Was it illegal? Will he implicate others? President Obama is watching carefully, and if it doesn't pan out well we might have a new Fed Chairman next spring.
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