BigTrends

The S&P 500 Index tracking ETF (SPY) closed today right around the 115.00 level.  This is a strike price where there is fairly heavy open interest, especially in the Jan 115 Calls.  There is a possibility that we may get "pinned" right around this strike price on Expiration Friday.

However, the good news for the bullish case is that last Expiration, the SPYders got stuck at 110 on Expiration Friday.  The following week they were "freed" of that expiring open interest, and subsequently rallied for the next several trading days.  As you can see on the following chart, the December 18th Friday low was 109.28, by the next Thursday (Christmas Eve) they reached a high of 112.61.

For those interested in index option trading, we have the BigTrends Index Options Timer program, which gives specific real-time, short-term trades on the SPYders and other indices.

There looks to be a lot of November Expiration related "pinning" going on as we head into Friday's close.

The S&P 500 (SPY) is starting to move towards 110 ... a last hour spike to that level would be likely a "false" pin that would be reversed on Monday, in my view.

Many big equities are moving right towards strike price pin levels, including (AAPL) at 200, (GOOG) at 570,  (RIMM) at 60, (DIS) at 30, (AIG) at 35, (FITB) at 10, (NFLX) at 60, (AMZN) at 130, (COST) at 60, (DISH) at 20, (MON) at 80, (HPQ) at 50, (KO) at 57.5, among others.

As we've previously mentioned, this kind of "pinning" action, where a stock closes right around an option strike price on an Expiration Friday is due to a variety of factors.  Among these are technical, manipulation, psychological, but also the actual option open interest at these strikes.  The open interest causes market makers and hedgers to buy and sell the stock around those levels to keep the books balanced (delta neutral, etc).

We've seen it time and time again, and this afternoon looks like no exception.

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

Why this date?  Among other things, a big earnings day...Goldman Sachs in the am, and we may see this as a catalyst for bulls and bears.  Intel in the afternoon, and a smattering of economic reports.

We ended up rather mixed with a slight downside bias on expiration week in May.  We bought into some new ideas on expiration Friday and while they started off well they came off a bit as the volatility rose in the latter half of the session.  So it goes.  We did post a decent winner with RIMM and GOOG and managed our losses.

See-saw action here today but mostly constructive.  One thing we know about expiration Friday is the pinning effect, where open interest levels rule where prices seem to magically land at the close.   One thing notable about this rally is the broad strength, something lacking during the last rally (nov/dec 2008).  Also, the VIX fell from 80 to about 36, this time around it fell from 55 to 35, so the velocity is slower, the fear less of an issue.  We should see some kind of correction, but as we know...markets are irrational and can extend further than we 'think' they should go.   

Seeing some sluggishness following a long weekend, which is ok...frankly, I would suspect some mild pullbacks this week, nothing too severe. Expiration week generally goes the way of the prevailing trend, and 5 straight up weeks means that trend is higher. Financials are starting off lower on some downgrades, but it's early!