# Stock Price Clustering on Option Expiration Dates



## Smack (28 December 2015)

Hello All.

This article outlines research on stock price clustering on option expiration dates:

http://www.nytimes.com/2006/05/07/business/yourmoney/07stra.html?_r=0

The following 4 x major findings were noted:

1) Stock price clustering cannot be attributed to chance.

2) Stock price clustering generally appears almost immediately in these stocks' trading patterns on expiration days.

3) Stock price clustering could be caused by straightforward hedging transactions often undertaken by market makers on options exchanges. 

4) Firm proprietary traders (which includes employees of large investment banks who are trading options for those banks' accounts) are in a position to manipulate stock prices by selling large numbers of shares whose prices they wanted to keep from rising and by buying other shares whose prices they wanted to support.

I ask you good people the following question -

What information on the monthly option pricing table for a particular stock (with multiple contracts expiring for that month) can be interpreted to determine which option strike price will most likely be matched?

Smack


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## wayneL (28 December 2015)

Look up " max pain"

The human market makers I used to know reckoned is was merely a function of traders delta hedging their book.


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## Smack (28 December 2015)

Thanks Wayne.

Here is an international site that provide 'max-pain' charts for OS options.

http://maximum-pain.com/options/max-pain/

Do you know of any source who can provide me with the max-pain chart for Australian - based options?


Smack.


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## cutz (28 December 2015)

Smack said:


> Thanks Wayne.
> 
> Here is an international site that provide 'max-pain' charts for OS options.
> 
> ...




Could you compile your own by sorting in excel open interest times settlement price ?

Just a thought, is it a similar concept ?


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## pixel (28 December 2015)

cutz said:


> Could you compile your own by sorting in excel open interest times settlement price ?
> 
> Just a thought, is it a similar concept ?




That's what I have been doing for about ten years:
http://rettmer.com.au/TrinityHome/Services/index.htm#_Prev4

Especially the graph/ bar chart of Open Interest Distribution is giving me strong leads to the most likely battleground where a motherstock is about to trade in the lead-up to the monthly Option Expiry date.
Works also with XJO Index Options.

For a more recent example, check out where ANZ closed on October expiry day. Distribution chart attached.


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## Smack (28 December 2015)

Excellent guys!

How do i start the ball rolling with a few stocks using rettmer?

Pixel - where is the max-pain point on your ANZ chart you have published above?




Smack


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## pixel (28 December 2015)

Smack said:


> Excellent guys!
> 
> How do i start the ball rolling with a few stocks using rettmer?
> 
> ...




In the example, the greatest number of ANZ options would expire worthless just below $28.00, but the excess of Calls at that level is so small that the price range $27.50 - $28.50 is much of a muchness.


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## Smack (28 December 2015)

Thanks Pixel.

What final strike price do you see this stock at?

Does Rettmer provide all ASX options with OI graphs like this?

Can I have a choice to select from each day?

Price of their service?

Smack


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## pixel (29 December 2015)

Smack said:


> Thanks Pixel.
> 
> What final strike price do you see this stock at?
> 
> ...




It's much easier than that:
Rettmer.com.au will issue a license (single-user $55, no time limit) and you can run it yourself as often and for as many ASX stocks and ETOs as you like.
The macro runs under Excel 2003 up to 2010. 
Raw data are available to be downloaded until the respective expiry date(s) and stored for as long as you have room on your computer's disk drive.


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