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OK to Short K-Swiss

Stocks tend to 'pin' to a nearby strike at expiration, providing a potential trade in the form of a straddle sale or even simple stock scalp in the final days (or hours) before expiration.

Many traders are familiar with the tendency of stocks to 'pin' to a nearby strike at expiration, providing a potential trade in the form of a straddle sale or even simple stock scalp in the final days (or hours) before expiration. The following stocks currently have blocks of open interest near spot that exceed twice the average daily stock turnover. These all expire tomorrow afternoon and, if not rolled, are worth watching closely.

Of these, the one I like the most as a straddle sale would be the

K Swiss

(KSWS)

, with 8824 contracts, the potential equivalent of 882,400 shares, or 7.6x the average daily trading in the stock. Most of these are in the puts, which are $0.31 out of the money based on yesterday's close.

Trade history shows a large part of these were opened last May, with buyers paying $1.75 when shares were near $12.15, suggesting the liquidity providers ('the street') are likely short the contracts. In my opinion, this increases the likelihood that the stock price will hold above the 12.5 strike, at least through Friday afternoon.

Selling the straddle for the current mid-market level near $0.40 is one way to play this view, but entails significant short-term risk and would require close observation. A more conservative approach is to try to 'scalp' the stock, selling short at the current $12.80 level, and covering $0.10 lower, and repeating if price movement allows.

Trade: Short 1000 KSWS at $12.80 per share.

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At the time of publication, Henry Schwartz held no positions in the stocks or issues mentioned.

Henry is the president of Trade Alert LLC, a provider of real-time options analysis tools to leading Wall Street firms. His systems analyze hundreds of thousands of transactions per second to help professionals identify and interpret market activity in real time, supporting informed trading decisions and intelligent idea generation.

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