Freaky (After Close) Friday

After the bell on Friday, the FOMC made a major announcement: The banks are again allowed to buy back shares.

JP Morgan immediately announced that they would buy back $30 billion worth of stock.

After hours, every bank stock, save maybe Wells Fargo, shot up.

But this isn’t the most shocking thing – read on for the dirty details…

What makes the timing of the announcement so interesting is that it took place AFTER hours — but BEFORE time ran out to put in “contrary exercises.”

(Contrary exercises are when a trader exercises a call or put that is out of the money based on an expiration Friday market close. They can also be when a trader opts NOT to exercise a put or call that is IN the money based on the closing price of the underlying.)

What made Friday so unique is that a MASSIVE amount of out of the money calls needed to be exercised AFTER the close.

Not only that, but a bunch of puts that were GOING to be automatically exercised needed to NOT be exercised.

Check out the open interest in BAC:

The stock closed $28.61 but was trading over $30 by 4:45 ET on Friday afternoon.

More than 120,000 calls needed to be exercised after the close. More than 30,000 puts needed to NOT be exercised.

JPM, Goldman and Citi had similar issues.

Here’s a look at JPM:

JPM had about 25,000 calls that needed to be forcibly exercised and about 7,000 puts that needed to be forcibly not exercised.

I have seen an individual stock make a move or two after market — but never an ENTIRE industry.

For those who were paying attention on Friday, there was A LOT of money made by paying attention to what the banks did after the bell.

The lesson here: Leaving early on these MASSIVE expiration days will cost you.

More importantly, close those shorts!

If you were short a 120 calls in JPM at the close, it cost you .15 to buy it back …

However, many are going to get a rude awakening on Monday, when they walk in and realize that they were assigned on what they THOUGHT were out of money calls.

Ouch!

Your Only Option,

Mark Sebastian

PS – Yes, there is a way to take advantage of these events. Yes, in 2021 I will be helping you dive into it to make money. 😉

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