A Pin vs. The Trend
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A Pin vs. The Trend

Henry Gambell - April 12, 2016

Good evening everyone, this is Henry Gambell with Simpler Options, and in today's free video, I want to share some ideas with you on this topic: A pin versus the trend.

When you get into monthly expiration, the concept of pinning is always something that you're going to hear. It's basically just based off of the idea that market makers, hedge funds, the powers that be try to manipulate prices of underlyings, to get them to consolidate. And your key strike prices, so both call buyers and put buyers, find themselves losing money, Of course, they take the opposing side of that, selling those in a premium rich options, and then just try to get the markets to chop into Friday. That used to work a lot better than what I've seen lately.

Some of the things that I've tried to do is take that pinning concept, and then instead either adapt it with the trend, or what I may find in the open interest for your options. When you look at Apple (AAPL), the trend that we've seen currently here off the daily chart is clearly bullish. If you take a little bit bigger stance on it, though, and you'd see this on the weekly chart, swing high, swing low, this will show you that we're still failing exactly at that 618 retracement, where you also find the 200 day moving average.

So those are a couple of things that, to me, back the idea of more resistance, rather than saying that we want to try and buy the pullback. When you come over and take a look at your options chain, this really helps reinforce that idea. We'll look at the huge amount of open interest on the 110 calls, versus the amount of open interest that you have on the 110 puts. This, to me, is not where both sides have equal pressure for exploration, but to where you would actually have more of a vested interest in the short 110's expiring, not to mention that goes with what you see in the chart, as well. So I will look to AAPL to have a little bit more of a sideways to bearish stance on it.

And then to contrast that, or to give you another example of where I think a pin is at least something that I can try and argue little better, I want to look at Facebook (FB). Facebook did not have the best close today, and I don't like it being back below the 50, along with its 618. To be fair, I don't even really like the market. But I am looking at 110, all right? And here is a general congestion zone. That's kind of where we've seen price trade for quite some time.

And if we come over and take a look at the options chain, keep in mind that you want to look at this as we progress through the week, because these values will change on a daily basis, but this is more of what I would look for, to suggest the potential of a pin. You have 18,000 open on the call side, 16 on the put side, and that creates a bit more of a balance, I would say, on something like that, not to mention the chart subscribes to it a little bit better, as well.

So, if you take these ideas, apply them to your expiration trades as we get into Friday, I think they will help your probabilities of success, and give you some more ideas to think about where you want to place these trades.

One last thing I want to make you aware of: Tucker Stipe, another member of our team, will be giving a free webinar on this Thursday, April 14th, on essentially the trend trading system that he's been using. The title of it: the trend is your friend, and it's just going to be some of the tips and tricks that he has been using to work some of the current trending markets. So, if you'd like to check that out, it is a free webinar, you can sign up at the end of this video, and I hope to see you there.