The Pin trade in Priceline

I do a trade every Friday where the goal is for price to “pin” to a certain strike. At times I reference this as a “Bowling Pins” trade so if you see this from me this is what I am talking about.

Today I selected the September 14 weekly 640 Call in $PCLN to sell and did so —  $3.20 in premium collected. For a look at how this option has traded today, here is a 60 minute chart:

Now I want to highlight a few things about this trade that are very important:

  1. This takes margin
  2. There is risk associated to being naked short this call so it requires focus
  3. A stop should be used
  4. Sometimes I choose a Call, sometimes I chose a Put, and on rare occasions I have sold the straddle

Now with that said, I want to discuss item #3 and why it is so important. Since I am a big believer in using stops I had one set on this trade (a trailing stop). The problem is, I had it set wrong (normally 25% but I had it at 125%, ugh) and it cost me profit as price dipped under the $640 price level and then rebounded slightly.

The low has been $.29 and high has been $5.80 for the day. If I had this set correctly, it would have covered under $2 for a healthy profit.

So in summary, it is great to have a trade thesis and plan. Be sure that you when you execute the plan that you have dotted all the i’s and crossed all the t’s.

2 thoughts on “The Pin trade in Priceline

  1. I am fairly new to options and am trying to learn something. I enjoy your blogs but have a question about this one. I hope you can answer. Why are Fridays a good time to “pin” a strike? Do most traders try to get out of a positions on Fridays? Also, in this case were you looking for a pattern to pin the strike? just curious

  2. I use weekly options, that expire on Friday, so the goal becomes simple: sell premium at a strike that I believe the stock will pin to. I usually see a final shakeout at 3PM EST and look to manage the premium collected.
    I trade this stock a lot, have a good feel for how I behaves, but don’t have a view on any specific pattern.

Leave a Reply

Your email address will not be published.