{"id":3381,"date":"2010-08-16T16:11:43","date_gmt":"2010-08-16T21:11:43","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=3381"},"modified":"2010-08-16T16:11:43","modified_gmt":"2010-08-16T21:11:43","slug":"using-putcall-open-interest-to-predict-the-rest-of-the-week-8","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=3381","title":{"rendered":"Using Put\/Call Open Interest to Predict the Rest of the Week"},"content":{"rendered":"

Options expire this Friday, so let\u2019s 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\u2019s 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?<\/span>
\nSPY<\/strong> (closed 108.26)<\/span>
\n\"\"
\nPuts out-number calls more than 2.5-to-1, so bearish sentiment remains high.<\/span>
\nCall OI is highest between 108 and 115 with spikes at 110, 112 and 115.<\/span>
\nPut OI is highest from 100 to 112.<\/span>
\nThere’s some overlap in the 108-112 area, but since puts far out-number calls, let’s focus on those to determine where price needs to close Friday to cause the most pain. With SPY closing at 108.26 today, a close right here would expire about 60-70% of the puts worthless, but to really cause a lot of pain, a move to the top of the high-put-open-interest zone near 112 would be better. Hence, a move up the rest of the week<\/strong> is needed. <\/span>
\nDIA<\/strong> (closed 103.28)<\/span>
\n\"\"
\nPuts outnumber calls about 1.6 to 1.<\/span>
\nCall OI is highest between 103 & 110.<\/span>
\nPut OI is highest 97 & 103.<\/span>
\nThe two zones meet at 103, so it’s easy to say a close there would cause the most pain. DIA closed today at 103.28, so flat trading the rest of the week<\/strong> would accomplish this. But SPY OI is greater than DIA OI by a factor of 24, so it’s best to ignore DIA data unless it has shown to have better predictive capabilities.<\/span>
\nQQQQ<\/strong> (closed 44.80)<\/span>
\n\"\"
\nPuts out-number calls by 1.5-to-1.<\/span>
\nCall OI is highest between 45 & 48.<\/span>
\nPut OI is highest between 41 & 46.<\/span>
\n There’s overlap between 45 & 46, and with today’s close at 44.80, a little upside movement is needed the next couple days<\/strong> to achieve max pain. But a close right here would cause “enough” pain. <\/span>
\nIWM<\/strong> (closed 61.56)<\/span>
\n\"\"
\nPuts out-number calls by 2.2-to-1.<\/span>
\nCall OI is highest 62-69.<\/span>
\nPut OI is highest between 55-66.<\/span>
\n There’s some between 62 & 66, so similar to SPY, a close right here would cause pain but not an extreme amount of pain. Instead a move up the next couple days<\/strong> is needed to expire more of the puts worthless.<\/span>
\nOverall Conclusion:<\/strong> The bears continue to trade in anticipation of a big move down and as of today’s close, they’ll show a net profit. If the market conspires to close such that the most number of options expire worthless to cause the most pain, a bounce is needed the rest of the week.<\/span>
\n