Is it true that Market Makers will pin an option between strikes?

Question

I have been trading options for 7 years now and have noticed that sometimes options with high open interest on the calls and puts will be pinned down until the position expires. Is this true or just circumstance? Either way it seems suspect.

Answer 1

<<<Is it true that Market Makers will pin an option between strikes?>>>

Yes it happens sometimes but not as an intentional manipulation by anyone. It can happen as a natural consequence of the way market makers hedge their delta risk.

Option market makers buy and sell shares to hedge risk. Sometimes, but not always, their positions will require that to hedge they sell the stock when the price goes up and that they buy the stock when the price goes down. That can result in a stabilizing infuluece on the stock price and the price being pinned until expiry.

At other times their positions will require that to hedge they sell the stock when the price goes down and that they buy the stock when the price goes up. That can result in an increase in the volatility of the stock price, particularly close to expiry.

Answer 2

Market makers are tightly regulated and closely watched. I highly doubt that a market maker would risk his career and going to jail to manipulate the price.

Market makers can make plenty of money in legal ways. They don't have to risk jail time.