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 SPY 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 SPX stocks on the NYSE around 2:40 (do not use the third market). That's XOM, PG, GE, JNJ, IBM, BAC, JPM, 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 MA, GS, LMT, and BNI 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 SPX about 2 points. If you have Level II, you can start buying the offers on AAPL, MSFT, GOOG, and AMZN 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 SPX about 2 points. And then a buying panic, three to five minutes before the close catches the specialists without any stock to sell and that pops the SPX another 2 points for a total of about six points in 20 minutes. And the SPX 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 SPY from 3:09 into close. Since the SPX 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 SPX 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 SPX about four points (and not the six 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 okay, 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 FINRA would like for us to remind you that trading SPY 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.
