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There are two ways to play the pin on a stock like Apple (AAPL) - Get Apple Inc. Report on options expiration day. Leading into Friday, the $250.00 level has been a veritable magnet. Not only does it have large open interest on the options for this strike price, it also has the benefit of being "a nice round number" to aim for (think 200, 250, 300, etc). Aim for? Yes, there is a huge benefit to the professionals who trade this stock for the price to spend some quality time around $250.00 this Friday.

This type of price action sucks the premium out of both the 250 puts and the 250 calls -- options that the professionals sold to retail traders. Retail traders, disappointed that AAPL has not moved well away from the 250 strike, watch helplessly as their 250 strike price options get crushed to near zero. They throw in the towel on this trade, vowing to do better next time around. Meanwhile, the professionals buy these options back for pennies on the dollar, reaping the difference.

Apple (AAPL) 15 Minute
Source: TradeStation

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The first play on this stock would be, to take option positions early in the week that would benefit on a move to $250.00. This can be done directionally. That is, buying the 260 puts on Wednesday when the stock was trading near $254.00. A fall to $250.00 caused the value of the 260 puts to jump 50%. A vertical spread could also be used -- that is, buying the 260 put and selling the 250 put. By selling the 250 put, a trader is now on the same side as the professionals who are looking for this option to expire worthless.

The second play on AAPL is on options expiration day itself, initiating trades for the first few hours of the trading day. For Friday, I will be watching AAPL and anytime it veers more than $1.00 away from the 250 strike, I will throw on a vertical spread for an expected trip back to the $250.00. For example, if AAPL moves down to $249.00 early Friday morning, I will buy the 240 call and sell the 250 call. Then if it moves back to $250.00 I will close the trade. Vice versa, if AAPL moves to $251.00 early in the session, I will buy the 260 put and sell the 250 put, closing the position on a move back to $250.00.

In a perfect world, AAPL would close at $250.00 by the end of trading on Friday. I am willing to play the stock for its trips back and forth across the 250 strike, while the options professionals suck the premium out of this trade.

At the time of publication, John Carter held no positions in the stocks or issues mentioned.

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John is a Commodity Trading Advisor with Razor Trading. McGraw Hill commissioned him to write a book entitled Mastering the Trade, which was released in January 2006. Carter has also been featured on ABC Money. He and Hubert Senters founded and run the Trade the Markets web site.

OptionsProfits, a new provider of options news from TheStreet, educates investors and acts as a catalyst for trading.

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