How Do Market Makers Pin A Stock Right At The Strike Price During Option Expiration?
That is a great question! This practice is often referred to as “pinning the stock”. It is one of the anomalies of option trading. I believe it is a sell fulfilling prophecy. When the stock is close to the strike price, traders know the tendency. When the stock rallies above the strike price, they let it run its course and then they sell it. As the upward momentum reverses, other traders will recognize that the pin “is on” and they will join the selling. When the stock is below the strike price they buy the stock with the same intent. If ever there is too much opposition, they will know when to quit and they will leave it alone. This action is similar to many technical price levels. When many traders clearly see a stock that is testing a major support level (i.e. 100-day MA), they will buy it knowing that other traders see it too. They are all expecting the stock to bounce and collectively they make it happen. On expiration there are conversions and reversals (arbitrage plays) at play,
