How do options expiration's hold stock prices at certain price levels?

I need some kindergarten level explanations please!!!!!!!!!!!!!

I am assuming you understand how options work. If you do not you might want to take the quick "options overview" tutorial at

http://www.cboe.com/LearnCenter/Tutorial...

While statistically there is a small tendancy for stock prices to be close to an options strike price at options expiration, that tendancy is so small that I do not believe it is something you could use effectively in your trading.

The reason for the tendancy is simply that large option traders tend to hedge option position with stock positions.

For example, assume I buy 1,000 put options on XYZ stock with a $50 strike price. That means that if the stock is below $50 at expiration, I will sell 100,000 shares for $50 each, but if the stock is above $50 at expiration I will not sell any shares. Since I do not want to own the stock Monday, I want to own 100,000 shares of the stock if it is below $50 at expiration, but I do not want to have any shares if it is above $50.

So, if the stock is trading at $49.90 shortly before expiration I will own $100,000 shares, but if the stock suddely goes to $50.10 I do not want to own any shares, so I sell my 100,000 shares. Selling shares drives the share price back down toward $50.00. Similarly, if the stock is trading at $50.10 shortly before expiration I will not own any shares, but if the stock goes down to $49.90 I want to buy 100,000 shares at $49.90 since I can them sell $50 each and make a $10,000 profit. Buying shares drives the share price back up toward $50.00. Because I am hedging my options position with shares I am driving the price toward $50.

Of course, I am only one small factor in determining the price of the stock. There could be other option traders who are hedging in a manner that drives the stock price away from the strike price.

This explanation is slightly simplified since most option traders will actually use a hedge ratio (the delta of the option) when buying and selling shares, but the basic concept is the same.

You "get more bang for the buck" trading options.

Options have the element of time and decay.

Options don't hold the stock prices. Options follow the stock's price.

The losses are already known. A trader KNOWS he/she cannot lose any more than the cost of the option.

To learn more about options trading, here's a free AND VERY helpful site:
http://optionseducation.org

That site basically "spoon feeds" those folks who would like to learn more about trading options.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!