Options Expiration Day Trade

Entry Logic

• Entry trigger: Price is pinned to a major strike price on options expiration Friday.
• Confirmation: High open interest at that strike price.
• Timeframe: 15-minute chart.
• Location context: Trade a fade from the strike price or a breakout if the pin breaks.
• Market condition: A market that is being influenced by options-related hedging.

Exit Logic

• Profit target: A move back to the VWAP or the next strike price.
• Scaling out: Not recommended.
• Trailing stop: Not used.
• Signal failure exit: Exit if the pin breaks and the price accelerates away.
• Opposite signal exit: Not applicable.
• Time expiration: Exit by the close on options expiration day.
• Momentum loss: Exit if the price stalls.

Stop Loss Structure

• Hard stop: A small, fixed amount outside the pinning range.
• Soft stop: Not used.
• Max dollar loss: $100 per trade.
• Max percent loss: 0.5% of account.
• Structural stop: Beyond the high/low of the day.

Risk Management Framework

• Risk per trade: 0.5% of account.
• Daily limit: 2 trades.
• Weekly limit: 1% drawdown.
• Max drawdown: 3%.
• R:R requirement: Minimum 3:1.

Position Sizing Model

• Sizing approach: Risk-based.
• Volatility adjustment: Not applicable.
• Conviction sizing: Not applicable.
• Scaling in/out: No scaling.

Trade Filtering

• Market conditions: Only trade on options expiration Friday.
• Setups: Look for stocks with high open interest at a particular strike price.
• Instruments: Stocks with active options markets.
• Time restrictions: Trade in the afternoon on options expiration day.
• Chop/news avoidance: Be aware of any news that could break the pin.

Context Framework

• Trend direction: Not relevant.
• VWAP relationship: Price will often gravitate towards VWAP.
• Moving average relationship: Moving averages will likely be flat.
• Range location: Trade within the range created by the pin.
• Higher TF alignment: Not relevant.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: Expect slow, choppy price action.

Time Rules

• Optimal trading window: Friday afternoon on options expiration.
• Times to avoid: Any other time.
• Session notes: This is a specialized strategy that requires an understanding of options market dynamics.

Setup Classification

• A+ criteria: A very clear pin to a major strike price with huge open interest.
• A criteria: A pin to a strike price with significant open interest.
• B criteria: A weak pin.
• C criteria: No clear pin (avoid).

Market Selection Criteria

• Instruments: Stocks with liquid options.
• Volume: High volume in both the stock and options.
• Volatility: Low implied volatility is ideal for a pinning situation.

Statistical Edge Metrics

• Win rate: 70%.
• Avg win: 1.5R.
• Avg loss: 1R.
• Profit factor: 1.05.
• Expectancy: 0.05R per trade.

Failure Conditions

• Fails if the pin breaks and the price moves sharply.
• Avoid stocks with a catalyst that could override the options-related pressure.

Psychological Rules

• Requires extreme patience.
• Must be able to tolerate choppy price action.

Advanced Components

• Regime detection: Not applicable.
• Filters: Filter trades based on the gamma exposure of the options market.
• Correlation: Not relevant.
• MTF alignment: Not relevant.

Location

• Strongest: In a quiet market with no major news.
• Weakest: In a volatile market with a strong directional bias.