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Preparation for Options Expiration Racketeering Week

Courtesy of RobotTrader

Now that we have last Wednesday’s the rollovers over with, now it is time to start thinking like a criminal and figure out how Goldman is going to make its $500 million this week by vaporizing 90% of all the potential put/call profit in current period’s open interest .

The standard strategy is to identify stocks or sectors which have been on relentless meltups, or recent breakouts, where there are likely to be massive call positions.

And on the other side, look for beaten down, broken stocks which have not participated in the recent buying melee, because that is where most of the frustrated bears have been pyramiding their put positions, because its the only play that seems to be working.

My guess is that the calls on many of the retail names are going to get smoked, so look to get short this sector:

And the worst sector on the planet right now are the solar stocks, so you could see a fantastic squeeze.  Note that 20% of FSLR’s shares are still sold short.  And at least 5 Chop Houses downgraded that group over the last 3 weeks.  Probably a good idea to go long here:

As far as the techs go, probably a mixed bag.  I heard Fast Money’s Najarian last week talk about somebody buying huge puts in the QQQQ’s two days in a row as it was approaching the oft-discussed double top.

More than likely, the “Fab Four” (AAPL, GOOG, BIDU, RIMM, etc.) are due to get shanked since they are loaded up by momentum players.  But some of the dogs in the NDX like AMAT, MSFT, FLIR, KLAC could be prone to some epic squeezes, which could keep the QQQQ’s flat on the week.

Another idea is to find the most over-extended stock on the Investor’s Business Daily Top 100 list that has not had any correction in the last 6 months.  There might be a mountain of calls pyramided in those names.

Here’s one example:

Everybody and their brother keeps shorting the banks, so I expect to see some of the names in that sector really get jammed up.  Except for Citigroup, because the entire planet bought millions of calls last week after the breakout.  Najarian mentioned some absurd number of contracts traded on Thursday.

And to make this especially complicated, isn’t another FOMC “Politburo” meeting scheduled for the 16th?

No doubt, billions of eyeballs will be staring at the screens that day, attempting to parse and translate the “words” uttered from Bernanke’s pie-hole.

Imagine the stress levels among the 24-yr. old “portfolio strategists” at their Grand Cayman trading desks wondering what is going to happen next with options expiration volatility and a Fed statement…

LOL….


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