It is interesting to point out and remember that one man’s floor is another man’s panic point; this is essentially at the core of volume related technical studies. The individual perception of what seems to be logical during panic, euphoria, or complacency all makes a market at a price. The question becomes how do we get to theses prices or large round numbers? Maybe a certain amount of rounding must be done… it is interesting to note that of 11 of the 15 biggest analysts on the street have large round numbers as price targets on AAPL (ie ending in a 0), but this is not breaking news…what is the trade on this and what may cause these large round numbers? The answer is pin risk in the derivatives market.
As of the close on Tuesday (09/18/12) AAPL was trading at $701.95. Last year at this time, the same question could have been asked, for AAPL was a mere 1% away from a new all time high. Lone behold on that expiration Friday AAPL pinned right on $400 (see Sep. 2011 quote below). The following Monday AAPL made a new all time high…raging to $411.
September is traditionally a slow month, so open interest can be powerful tool during this month. Hedgers and speculators square up their positions, for they do not know if they will be assigned or expire ITM. Open interest at the $400 line was roughly 30,000 on the calls and 21,000 on the puts. Exhibit 2 below visualizes the open interest of the September 2011 options on both sides.
In September of 2010 (exhibit 3) AAPL pins directly equidistant from the $270 and $280 strike. Then in 2009 AAPL pinned right on $185. And finally in 2008 AAPL went out at $140.91, not as strong as the other months, but still noteworthy.
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Data courtesy of Thinkorswim
