This week brought us to monthly option expiration which is great for pinning plays. Not only was it a normal monthly option expiration but it is also consider triple witching. With that in mind I wanted to find a couple stocks that in the past I've had success with in pinning. Those have been SBUX, FB, JPM and BAC to name a few. This time around I used BlackBoxStocks for help. Let's dive into the details.
What is pinning? Pinning, I'm looking for a stock that has high open interest on both the calls and puts at a certain strike. The strikes are usually the closest multiple of 5's and 10s. Say a stock is trading at $182. I would like at $180 or $185. A stock trading at $77, I would look at $75 or $80.
I'm not going to get into the basics of options here so hopefully you understand some of the terms I'm about to use. Let's dive into BlackBoxStocks. This is one of the greatest tools in trading I've used other than Fibonacci! You see real time option flow and can follow the funds. What are the big boys doing? Do you ever wonder what the big boys look like? I'm guessing, 6'3" 300lbs in an Armani suit. But seriously, they have an option scanner to follow institutions. See what option dates, strikes and more of what the "Big Boys" are buying or selling.
I usually like to start looking on Tuesday or Wednesday for these "pinning plays". You should have a sense of direction of the market that week and key levels should be easy to find now for that stock. Here's a look at the chart and flow on Facebook on Tuesday, September 19, 2019. Few things to notice:
At the time of this chart a big flow of 190 calls start appearing. So that has caught my attention big time. Do we pin at $190? Again, if you've not tried BlackBoxStocks you really need to comment below and leave me your email or DM me on Twitter.
Now that I have more faith in the $190 calls than I do the $185's I needed to see add my fibs to the chart.
I wanted to set up two possible plays. One was a call credit spread. Sell the 190 and buy the 192.50 or do a butterfly where I sold the 190 and was $2.50 wide. The risk reward was better on the butterfly. I alerted the trade and here is the set-up. I waited until Thursday to enter the trade because we had FOMC this week. Normally I would've went for it on Tuesday and it was really hard not to enter then because of the nice flow that came in on 9/17.
Like any trade I make, the goal is always to make at least 50%. For this to happen, I needed to sell at $1.65. Today around noon this was trading near $1.80-$1.90 and I like round numbers so I put in an order to sell at $2.00.
Closing this trade out at $2.00 netted me an 80% return! Enjoy your weekend everyone!