Why Cramer Takes Lunch on Expiration Fridays

Options expiration strikes again. Just when it looked incredibly ugly and I was prepared to hit a million bids to take away the pain, I remembered my options expiration rule: Walk away from the table, lest you do something stupid as wood to your portfolio.

Just as professional drinkers stay at home on New Year's Eve, professional traders like to stay out of the office on expiration. You simply don't want to cause lasting damage based on the phony nature of what occurs on expiration day.

So I went uptown for a rare, once-a-quarter lunch with Art Cooper and Marty Beiser, my two incredible editors from GQ. One vodka martini and a glass of port later and the market is flying. The Ascend that I would have sold at $34.75 was at $35.75. The Mister Softee that I was prepared to pepper at $153 stood at $155. That was one money-making lunch!

What makes these situations so hard to game? First, on expiration day we are playing blackjack without even knowing what card we have, let alone knowing what the dealer has. The order imbalances caused by the expiration of so many indices cause stocks to move radically and incoherently. Most of the "looks" or pictures from the floor are just dead wrong. The Nasdaq makes no sense either. At the opening, for instance, Cisco looked to be $66 courtesy of the programs that expired that day. But I went in to sell 10,000 and nobody would pay me more than $65 and change. And that was fair! The artificial buying that spills from these indices is impossible to tap into.

In the New York Stock Exchange it is even worse. I tried to sell some IBM at the opening thinking it was going to open at $103 1/2, but instead I sold the stock below $103, giving it away, and I had to buy it right back.

In these situations, if guys like me, with floor wires, and broker wires, and access to all of the news and imbalances, can't make money, those of you with hunches about things are going to lose your car payments in a hurry.

I know, some of you will write and say that I am not being fair to the little guy when I write this. That's wrong. I am trying to save you money by telling you that you cannot take advantage of expiration to profit regularly unless you are a market maker or a specialist, and even then I am not sure you can do okay. The intersection between New York and Chicago on these days is so cumbersome and ugly that even with perfect information about companies I don't think you can make any money.

Suffice it to say that the only real way you can use the confusion of expiration to your advantage is to try to spot merchandise that you think has jumped more or fallen too hard because of some bizarre program. The day before, for example, Xerox had jumped five points because it had gotten included in some Merrill Lynch tech program. What a great opportunity to let some go short-term. Microsoft on Friday was being hit by some weird program seller and that, too, gave you a chance to buy at a reduced price.

But in both cases it took cojones of steel to make those trades. Mister Softee seemed like it was terminal at $153 and Xerox looked like it was in talks with Lucent -- everybody's favorite suitor.

That's why I think the best way to play these days is to go out to lunch. Which means I take lunch 12 times a year. See you at the Grill Room third Friday in March.

*****

Cramer on Squawk: Catch Cramer grilling CEOs and generally wreaking havoc on the CNBC set Wednesday on "Squawk Box," starting at 8 a.m. EST.

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