Mark, both the price during the day and the closing price are important vis-a-vis call options expiration.
BTW, options expire on SATURDAY, not tomorrow - a subtle distinction!
The closing price is important, in that it determines whether options wind-up "in the money" or not - e.g. worth something or worthless.
The price during the day is important, as the near-the-money options have tremendous leverage near expiration. And, thus your theory that "somebody could make a lot of money" is somewhat correct. Of course, this works to tend to insure that somebody *doesn't* make a lot of money. :) What you have to realize is that, at expiration, *somebody* stands to make a lot of money no matter WHICH way the stock goes. This is ONE of the reasons why many stocks tend to close near a strike price if there is a lot of open interest in the options.
Arbitrage is another important force at expiration. Somehow, all those options need to be closed-out. Most people prefer not to exercise, so the options wind-up being sold to arbitrageurs, who immediatly exercise and sell (or, in the case of puts, buy) the stock. This is how option activity gets translated into stock sales/purchases. |
