Trading Options at Expiration: Strategies and Models for Winning the Endgame

Chapter 2Working with Statistical Models

Different Populations

As we saw in Chapter 1, “Expiration Pricing Dynamics,” the key dynamics that make expiration unique are closely linked to the trading characteristics of individual stocks. Nonoptionable stocks and optionable stocks with low open interest levels both lack strike price effects. These effects are most often associated with equities that are heavily traded by institutional investors. The activities of these traders involve initiating and unwinding substantial stock and option positions that are highly sensitive to small moves in- or out-of-the-money. These situations, which tend to be self-canceling, cause stocks to trade near a strike price. The effects are enhanced on ...