The Expiring Option Exercise Manipulation Game

http://www.programtrading.com/oexexpmg.htm

The Expiring Option Exercise Manipulation Game

...Or; How Stacking the Deck on the CBOE and Loading the Dice on the NYSE
Can Make You a Million Bucks in Less than an hour!

One of the best ways to make a lot of money during option expiration week happens in the last hour of trading on Thursday afternoon, AND the first 15 minutes of trading on Friday morning. It is a relatively easy seven step process as follows:

First you start buying a few thousand "IN THE MONEY" calls on the OEX and/or SPX on the CBOE as quietly as you can around 2:20 Chicago Time. It helps if the spoos are dropping so you can slowly pick them up real cheap and, on most Thursdays about then, they are dropping about 75% of the time.

Second you start buying big blocks of the top OEX and SPX stocks on the NYSE around 2:40 (do not use the third market). That's XOM, GE, C, BAC, PG, PFE, JNJ, AIG, JPM, MO, CVX, IBM, WMT, and WFC in that order. Make sure the dollar amount of stocks that you are buying closely matches the total number of option contracts that you picked up earlier. Also, it helps to throw in a few big orders for GS, LEH, CI, FDX, BDK, and BA too since they are big stocks and can move fast. The crowd on the NYSE really wakes up and takes notice when you use them too. Your move will pop the OEX about 1 point. If you have Level II, you can start buying the offers on MSFT, CSCO, and INTC at 2:41 too. That wakes up the Level III crowd.

Then you wait about 6 or 7 minutes for the ripple effect to hit. Hopefully your move will panic the short day traders, making them cover before the close (because it can trap them with margin calls in about 11 minutes if they don't cover). They almost always panic and cover with "AT THE MARKET" orders. And about the time the specialists are starting to run out of stocks. The shorts will pop the OEX about 1 point. And then a buying panic, three to five minutes before the close catches the specialists without any stock to sell and that pops the OEX another point for a total of about three points in 20 minutes. And the OEX usually goes out on the high of the day, with the tape running a little late. Pretty neat huh?

Third, you buy a few thousand of "IN THE MONEY" puts on the OEX and/or SPX from 3:09 into close. Since the OEX went out on or near the high of the day, you'll usually pick most of them up hitting the lowest offer of the day. Make sure the total number that you pick up matches the dollar amount of stocks that you are holding long.

Fourth, starting at 3:16 you send notices to all of the clearing firms on all of the CALLS that you hold to EXERCISE them that night, thereby locking in your profit on all of your calls (the OEX went out on the high remember). Then you break out the champagne knowing you have probably just picked up about a half million bucks.

Fifth, on Friday morning at 8:31 you start selling all of the stocks you bought on Thursday afternoon. This usually starts a panic and everyone starts dumping those stocks. And the day traders start shorting too with no bids in sight. This usually drops the OEX about two points (and not the three that you ran it up the night before) because there is always some buying after the opening for option expiration to slow down the mini-crash.

Sixth, you sell all of your PUTS (now a little deeper in the money) on the CBOE and go flat in all of your accounts (stock and options) knowing you have now made another half million bucks or so.

Seventh, you leave for the weekend (and the following week too) in the Lear to Orient Beach in St. Martin, drinking Dom in the Rolls on the way to the airport.

That's it. An easy seven step process. Only six if you leave out the vacation.

Are you thinking fine, but I don't have that kind of money to do both sides of the trade? That is ok too. You can play the game with very little. A few E-mini's in your futures account, or a few puts and calls with your stock broker is very little money and very easy to do. The amount of money you have is not as important as knowing how to play the game.

The SEC requires that we tell you that our past performance during expiration week (no matter how good) is no guarantee of future success or continued profits. The NASD would like for us to remind you that trading OEX or SPX options is risky (like you didn't know that) and not for all investors. So, if you are not suitable for option trading, you should not be surfing around on this site. Everyone should click here before attempting any strategies mentioned on our web site.

Good article of persuade not trading option

http://web.wenxuecity.com/BBSView.php?SubID=finance&MsgID=465763

Do not play option, here is why..

文章来源: marketgame 于 2006-06-17 00:11:00




I am in this site for sometime, recently, several "famous" people here mislead people to play option. That is a losing game, please do not lose your hard earned money. I have 8 years experience in stock/option/futures trading and there are lot of lessons to share, one of it is not play options aggressively please.

There are some misconcepts about option. such as limit loss and big return.
actually limit loss = TOTAL LOSS
big return = SUPERLOTTO.
It is like to play lottory, limit loss, and huge huge return, in the end, you will always be loser!

If you really want to play option, instead of long it, write it, no matter it is naked or protected(spread, covered call, etc). Ok, let me say it again. WRITE IT. here is why,

The stock or index price can be one of following possible moves.
1. move up huge
2. move up little
3. bounce up and down(flat)
4. move down little
5. move down a lot
if you short a call, the only possible case you are going to lose is the case 1). the odd is 4 to 1, even dummy knows which way to go, besides, when something moves up huge, most of time it will turn back, so you still have chance to profit. Put is the same. If you want to make more profit, short both put and call.... Ok, to make thing simple, to comparing the insureance bussiness in the real world, how is life insurance company doing, how is car insurance company doing? most of them are profit companies for many many years. Option is a insurance, you should sell insurance instead of buying. Certainly before you are doing SELL OPTION, you need to do following several basic things.

(1) RISK control
(2) Money management

I do not have much time to talk about details, very simple way to say, chose to write index/future options, instead of individual stock. write far away out of many option, instead of at the money or close to at the money option. Read charts to find the resistance and support line and to write option around that areas. write option less than two month, it is better one month, never write option over 2 months. Do some hege about your position when market is really crazy like last two weeks.

I am talking to much, stop here, I really do not want my fellow chinese to lose many in so called high return option bussiness. For most of common people like me, to buy option is very dangerous in long run! Certainly there are few very very samrt guys like Buffet, Livermore and Swarze etc. they are rare animals, very rare animals. So be realistic, right attitude, just think this is like your day to day job, do not expect to be rich huge immediately. I believe that everyone can earn some money here and there in stock market..,

PPI and CPI

PPI (Producer Price Index)

http://www.bls.gov/ppi/

CPI (Consumer Price Index)

http://www.bls.gov/cpi/

PUT/CALL Ratio web site

http://www.market-harmonics.com/free-charts/sentiment/putcall.htm

Article about correction on June 13,2 006

http://web.wenxuecity.com/BBSView.php?SubID=finance&MsgID=461779

转贴一篇关于这次CORRECTION的有意思的观点:

文章来源: aaaa 于 2006-06-13 17:11:33




THE CORRECTION CONTINUES

As a card-carrying member of the seven figure correction club, I feel your pain on this correction, believe me. But corrections in bull markets have MADE us money the last three years -- especially in the energy complex -- so with the pain comes opportunity.

This time, however, the correction catalyst is a new one to the world markets -- a move by all the central banks in the world to take back the incredible amount of cash (i.e., liquidity) that they injected into the world post-9/11 and Internet stock bubble collapse, which makes this correction and this fight different because of its worldwide scope.

Most of the incredible sharpness of the worldwide market collapse is the unambiguous footprint of the highly leveraged $1 trillion private investment partnership business -- i.e., the performance-fee business model of the hedge-fund industry.

I have talked about the outside influence of this hot money in all the world's markets, and the evidence of my concern has come home to roost in the GECD markets -- i.e., gold, energy, commodities and dollar collapse.

My concern on the over-cooking in the copper, iron and other metals markets was behind my sell recommendations on Southern Copper (PCU) and Companhia Vale do Rio Doce (RIO) earlier this year. I was early, but if you have not sold them, make sure you do so now.

WHY THIS MARKET MELTDOWN IS SO DIFFERENT

This sell-off was so sharp, and volatility has been so high (250% above the last four-year average), that I did NOT want to step into the whipsaw of the up/down action that brought seven straight days of 100-point up and down moves.

We will see if this conservative move pays off from a big snapback that is overdue to hit the markets in the next few days. It could come as soon as tomorrow if we see a lower-than-expected core inflation number or happen after the Fed meeting when they raise rates and reduce their market bashing.

But on a big melt up (from our huge oversold markets), I will take a very hard look at a number of positions.

I have been waiting for our consumer spending survey to come in, and what we now see is a very strong reduction in spending in the $50,000-a-year-and-under households, which is not surprising.

But we are also seeing the first contraction in the $100,000-$150,000 households, and that is worrisome.

The over $150,000 a year households are fine, but the under-$50,000 households are MUCH worse off than last year. That keeps our Wal-Mart short on the books, but it keeps the GDP growth rates below 3% in my model.

Our economy now hangs on the super spenders -- the over-$100,000 households -- and if we see hunkering down there, we will go 100% defensive because their spending is more than 50% of total discretionary spending.

WHAT I'M SEEING RIGHT NOW

When Goldman Sachs comes in with 80% earnings growth and tanks $4 a share and Lehman Bros. shows similar growth and drops 5%, we are very, very over-bearish.

We are seeing our semi-annual meltdown in our Canadian Energy Trusts (Canroys) that again means sell stops are being hit from leveraged owners. We are now on Canroy watch -- we will have a fantastic opportunity to buy these funds with leverage at the bottom of their trading ranges, so stay tuned for that move.

The Oil Services HOLDRs (OIH) is also right at the historic buy point or the final breakdown point. Based on the trading history for the last two years, we will be buyers on a breach of the 200-day moving average line.



The Energy Select Sector SPDR (XLE) March low is $50.55 -- let's call that the line in the sand for the XLE.



GOLD

The meltdown in gold is the bubble bursting from the typical reason -- forced selling by liquidating hedge fund and leveraged civilian buying.

This meltdown is a classic burst bubble, and ALL burst bubbles overshoot to the downside as much as they overshoot to the upside -- that's human nature working its magic on the markets.

Again, we are at a critical juncture here. I expect that we overshoot the 200-day moving average by 5%-10% before it puts in a bottom.



Let's call this correction what it is -- the revenge of the central banks against the hedge funds who were caught leaning the wrong way with HUGE leverage.

Every big hedge fund of size had the following positions on after the March low:

* Short the dollar
* Long gold
* Long commodity
* Long energy

Look at the commodity massacre.

Gold dropped below $600 for the first time in nearly two months, closing at $567.50. Copper fell as much as $290 to $6,750 a ton (lowest since April 25) and is off 11% in four days silver is off a whopping 72 cents to $10.35.

What we are also seeing affecting the markets here is the draining of the liquidity pool from the global market, which is unprecedented. It's unprecedented because of the correlation of markets worldwide due to globalized economies and globalized private trading funds.

Investors are in the process of becoming de-leveraged, either on their own or with a gun to their head via the cashiering of their positions.

Most of what we have seen early in this correction was profit-taking trading. The sharp falls of the last few days are clearly cashiering and forced-liquidation selling.

All of the Fed rate hikes in the last 30 years have come with financial entity disasters, from Penn Square bank in the early 1970s to Long Term Capital in 1998. We shouldn't be surprised to get news of a few big hedge fund blow ups.

THE GIANT DISCONNECT

Higher inflation expectations make interest rates go up, higher interest rates cause options prices change, volatility goes up, and when interest rates go up globally it portends slower global growth.

Here's the disconnect. How can inflation rates be rising with all the inflation trades going the opposite way?

If this was an inflation-based correction, notwithstanding Bear Market Ben's diatribes, then why have:

* Gold stocks cratered 50%
* Long-term bonds rallied
* Commodities crashed?

These are the ONLY answers that make economic sense:

1) The Fed has broken the commodity bubble, and forced liquidation has turned the correction into carnage.
2) The bond market is expecting significant slowing in the world economy -- and the Fed to start CUTTING rates by year-end.
3) Equities are being repriced to slower U.S. growth rates.
4) The treasury inflation bonds are the same price they were May 10.

Our research shows slowing consumer and commercial spending rates. They're slowing, but absolutely not crashing (i.e., 10% or more reductions).

So this "correction" looks mostly like an "incorrection" -- an over-reaction to the Fed inflation hawks that turned into a forced liquidation of the most bubblicious assets classes they were too long. This is a classic Fed over-correction.

Listen, the inflation pipeline has been crushed. All the inputs of copper, metals, oil, gold, natural gas and food have dropped 25% or more in the last 30 days.

What the market is NOW telling us is:

1) We do not have Gentle Ben, we have Brutal Ben -- and we have the over-shoot scenario more likely than the soft-landing scenario.

2) We do not see a recession based on our surveys -- long interest rates have gone nowhere from 2004. Relatively speaking, if the Fed keeps short-term rates under 6%, we still have relatively accommodative monetary policy. But the removal of cash from the world monetary system refocuses investor attention to risk, which explains the massacres in Iceland early this year, then the Middle East stocks (50% or more depreciation in stock prices in 30-day freefalls), Emerging Markets down 25%-35% (i.e., India, Russia, Brazil, China) and ugliness in ALL foreign markets.

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Bloomberg future market information

http://www.bloomberg.com/markets/stocks/futures.html