The theory of maximum pain goes further, saying that the stock price will tend to move toward the price where the total value of options contracts, both puts and calls together, is the lowest. Pinning refers to the phenomenon that on option expiration Fridays the prices of optionable stocks tend to close on or very near to option strike prices. Pearson, interviewed in the article, defines pinning as follows:

There's a good, if dated, discussion on the topic on none other than Seeking Alpha back in 2011. How can options drive the price of the underlying stock? Sitting through a large options expiration with a portfolio of affected securities and visiting the mailbox for the brokerage statement following such a large expiration brings the message home with a visceral gut punch.Īnd what exactly is 'pinning' and 'maximum pain'? And I've attended numerous classes with options guru John Carter of Simpler Options.īut it just doesn't resonate in my thick head. I sat on the options desk during my brokerage training. I have a business degree, and have heard all about my excellent finance professor's friends Fischer and Myron (that would be Fischer Black & Myron Scholes of the famous and much used Black/Scholes pricing model). Intellectually, I ought to be equipped to handle the idea that the options tail can wag the underlying stock of a company. That's a big number for any company, and is the largest number I can remember in the several years I've been following Micron. Since each option covers 100 shares, these outstanding options control 74,406,000 shares, or about 7% of Micron's outstanding stock. How can a few options, expiring on a weekly basis, affect such a large market cap? With an open interest of 508,889 call options and 235,174 put options expiring next Friday, July 21, 2017, we are about to find out. Micron Technology ( NASDAQ: MU) has a $35 billion market capitalization.

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