Why You Need To Trade Expiration — Binary Options Expiration Strategy Results

Traditional options expiration presents another opportunity to implement the High Probability Binary Options Expiration Strategy we highlighted a few lessons back. To recap, we discussed how highly traded, optionable stocks tend to exhibit ‘pinning’ behavior when its stock price is close to a high open interest strike on expiration Friday. The proximity of stock price to strike price forces institutions to trade around the strike to try and manage the risk of being inadequately hedged at expiration. This dynamic usually results in stocks gravitating to the heavy open interest strike, or in other words, the strike at which the most money is at risk should shares expire just above or just below. Armed with this knowledge binary options traders can make appropriate binary call or put purchases for maximum potential returns. For further discussion of this pin risk phenomenon I suggest you pick up the book Trading Options At Expiration by Jeff Augen.

July 2010 Expiration Results:

In July we suggested to watch a variety of names including AAPL, JNJ, XOM, DELL and JPM for potential pinning behavior. We traded real-time during that Friday allowing you to follow the trades we implemented. We ended up placing 4 trades that Friday, going 4-for-4 as both AAPL and JPM finished almost exactly at the target strike price ($250 for AAPL and $39 for JPM). See the chart below for actual trade details:

Binary Options Expiration Strategy

The AAPL trade was interesting in that we decided to start buying puts during the 2-3 pm expiration cycle, allowing us to make two high probability trades on AAPL. The JPM trade was interesting in that it allowed us to place 2 trades on it, a binary put purchase with shares trading at $39.096 and a binary call purchase with shares trading at $38.906. JPM shares finished the day at $38.97, a perfect trade!

August 2010 Expiration Results:

In August the stocks available to be traded on leading binary options trading platforms that deserve pin risk strategy consideration: AAPL ($250), GOOG ($460), CSCO ($23), INTC ($20), JPM ($38), KO ($55), and MSFT ($25). These are the names we paid close attention to in the last 2 hours of trading. Really wanted to trade Apple (AAPL) but the stock moved to $250 with 1 hour of trading to go and never really strayed far enough to place a trade. I did however purchase a binary put option on JPM which yielded a profit as shares moved towards the $37 strike. I took a chance on GOOG moving to the $460 strike but was a few minutes late and ended up taking a loss (though I downsized my lot size due to less conviction). My trade results are highlighted below. Over the past 2 months we generated 5 winners and 1 loser using this strategy, 83% isn’t bad. See you next month!

JPM GOOG Trade

September 2010 Expiration Results:

In September the stocks available to be traded on leading binary options trading platforms that deserve pin risk strategy consideration were: KO ($57.50), GOOG ($490), MSFT ($25), INTC($19), and JPM ($40). Heading into the final hour most of the names were trading around the pin strike. GOOG was sitting maybe a dime away from $490, can’t really do anything when it’s that close on a $490 stock! I stuck with the tried and true JPM. Was able to purchase a binary put option at 3:05 with shares of JPM trading at 40.135. That was pretty much the high for the final 55 minutes and shares of JPM closed at 40.05. That’s 3 for 3 with JPM over the past 3 months.

Binary Options Expiration September 2010

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