Using Put/Call Open-Interest to Predict the Rest of the Week

Options expire this Friday, so let’s take a look at the open-interest on SPY, DIA, QQQQ and IWM to see if they hint at movement the rest of the week. Here’s the theory: the market conspires to cause the most pain, to cause the most number of people to lose the most amount of money. If the market is to accomplish this, what does it need to do this week?
SPY (closed 109.74)

Puts outnumber calls 2.5-to-1.
Call OI is biggest between 107-116 with the 112, 113 and 114 being the 3 most popular strikes.
Put OI is biggest between 100-113 with the OI at 110 and below being most popular.
Since puts far outnumber call, to determine what price would cause the most pain, let’s focus on put OI. Since most of the higher-OI strikes are at 110 and below, the ideal close would be at 110 or above so all these strikes close worthless. But we don’t want to move too far up or else more of the call strikes will be further in money. Bottom line: a slight move up from the current level would cause the most pain and frustration.
DIA (closed 102.81)

Puts outnumber calls by a small margin (last month calls outnumbered by a small amount, so it seems OI on the Diamonds get much less skewed than the others).
Call OI biggest between 100-108 with 103 and above being noticeably bigger than 102 and below.
Put OI is biggest 99-103, and there are two outliers at 94 and 96.
There’s some overlap between 100 & 103, and with call and put OI being about equal, a close in the middle of this range would do the most damage. With DIA closing at 102.81, slightly down trading the next couple days will cause the most pain.
QQQQ (closed 44.32)

Puts outnumber calls 3-to-2.
Call OI biggest between 43-47.
Put OI biggest between 40-47.
There’s a big overlap there (most of the tall blue and red bars overlap). The two big blue bars are at 45 and 47; the three big red bars are at 42, 43 and 45. Since they both have 45 in common, I’m going to say a close there would cause the most frustration. Based on today’s close a slight move up is needed, but a flat market would be fine too.
IWM (closed 62.05)

Puts outnumber calls by 2-to-1.
Calls biggest between 60-65 with 60 and 62 being noticeably bigger than the others.
Puts biggest between 55-62 with big surges at 56, 60 and 62.
There’s overlap between 60 & 62 with both those strikes displaying high OI for both calls and puts. A close between then at 61 would cause lots of pain. Based on today’s close, a slight move down would to the trick.
Overall Conclusion: Once again the bears outnumbered the bulls (puts outnumbered calls), but the degree is much less. Hence sentiment is still bearish but much less so. If this trend continues for another month or two, I’d be wary of a top and subsequent sell-off. In the near term, flat trading or little movement from the current level the rest of this week will cause the most pain and frustration.