Today we check out the put/call open interest to help us determine what may be in store for the rest of the week. The market likes to cause the most pain possible – something that can only be accomplished with a close such that the most number of calls and puts will expire worthless. The one caveat is earnings could, on a very short term basis, mess with things. Nevertheless, this is what is likely to happen absent market-moving news. …
SPY (today’s close 107.46)
Put OI much greater than Call OI.
Call OI biggest at 105 & 106 and again at 110 and semi big between the 106 & 110.
Put OI biggest between 100 & 106 and again down at 95.
So 105, 106 seems to be the breakoff – the area most of the calls and puts will expire worthless. With Tuesday’s close at 107.46, a little weakness is needed to accomplish this.
DIA (98.93)
Again, Put OI much greater than Call OI.
Call OI biggest between 95 & 103.
Put OI biggest between 89 & 98.
So there’s a 3-point overlap between 95 & 98, but since Put OI is much greater than Call OI, a close near the top of the range would produce the most frustration.
IWM (61.17)
Put OI is massive compared to Call OI.
Call OI biggest between 60 & 66.
Much bigger Put OI biggest 50 & 62.
The overlap is around 60, 61 & 62, but since Put OI is so much bigger, a close at the top of the range would do the most damage.
QQQQ (42.58)
Again, Put OI dominates.
Call OI biggest between 39 & 45.
Much bigger Put OI biggest between 34 & 43.
The Put OI is so much bigger than the Call OI, to cause the most pain, the Q’s need to stay near 43 or above.
In summary, the SPY and DIA need to weaken slightly and while the IWM and QQQQ needs to move up slightly. Both can’t happen, so lackluster trading will have to do.
This isn’t rocket science, and there are certainly no guarantees. This just gives us a frame of reference to work from.
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An interesting premise, and it certainly feels that way! The market likes to cause the most pain possible? It is tempting to wonder why that might be the case. If there is a motive of the market to do that, is there an opposite effect somewhere else? Perhaps broker commissions? Other?
A frame of reference is useful, and even more so if it makes some sort of logical sense. Someone sells a put or call option, and someone else buys it. Zero sum. If we are feeling pain, my bet for the day is that someone else in the market isn’t. In any case, open interest of option contracts does not follow open interest of trades of the underlying stock or index. Help me out here.
Those market makers and specialists pass their tricks on down through the family, hard business to break into unless you know someone. This ‘causing the most pain’ works on specific options like Google as well and so my experience tells me it’s controlled. You can figure out their methods and targets with a good trading system.
I think same issue with GLD. Ready for a pullback to 100? Or will a weak dollar keep it going.
The market makers are rationale actors no matter their family history. Their trick is to clear the market, but sell inventory at strategic opportunities. Some ops they create and some just come along. You can guess what is going to happen unless there is an inter-party sale, or dark pool deal which are not cleared on the floor. You really can not play in their league and that is the start of wisdom. OI on put/calls is where it is at.
“The Put OI is so much bigger than the Call OI, to cause the most pain, the Q’s need to stay near 43 or above.”
I suspect above somewhere around 44.115848 or so and sometime tomorrow. There is a line approximately at 42.908998 that needs to be resolved.
The incredible pessimism I’m seeing makes me think there’s some upside in the Q’z quite possibly scaring 46.129912 or there abouts in the next few weeks. That should make the grizzly’s cry like little girls. 🙂
All this is just my opinion and not be taken as an excuse to try and flip some OTM calls tomorrow for a couple hundred bucks.
I do think if they trade somewhere at 42.90 etc the probability of them moving over 44 is pretty darn good. Well see. This is an official prognostication.
pretty good trading and resolution of the 42.908998 between 9:48am – 10:52am today (Thur Oct 22nd) A review of the minute chart shows it traded all over that line.
aftermarket/premarket established a trading line @ 44.4978391.
I don’t know if this is a line the Q’z will run to or away from. My official prognostication is still to the upside.