{"id":3586,"date":"2010-10-11T16:13:24","date_gmt":"2010-10-11T21:13:24","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=3586"},"modified":"2010-10-11T16:13:24","modified_gmt":"2010-10-11T21:13:24","slug":"using-putcall-open-interest-to-predict-the-rest-of-the-week-10","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=3586","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 116.65)<\/span>
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\nPuts out-number calls more than 2.6-to-1. This is the same as last month. Bearish sentiment remains high.<\/span>
\nCall OI is highest between 115 & 120. <\/span>
\nPut OI is highest between 100 & 116. <\/span>
\n There’s overlap around 115 and 116, but since puts dominate calls, let’s focus on those. With SPY closing at 116.65 today, the stock is already priced to expire most put contracts worthless on Friday. Flat trading or a slight move in either direction<\/strong> would not change the situation. <\/span>
\nDIA<\/strong> (closed 110.26)<\/span>
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\nPuts outnumber calls about 1.2 to 1 – less bearish than last month.<\/span>
\nCall OI is highest between 108 & 111.<\/span>
\nPut OI is highest between 105 & 109. <\/span>
\n Calls and puts are nearly equal, and there’s some overlap around 108 & 109. A close at ~ 109 or 110 would expire most contracts worthless on Friday, and with today’s close at 110.26, flat to slightly down trading<\/strong> would do the trick.<\/span>
\nQQQQ<\/strong> (closed 49.77)<\/span>
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\nPuts out-number calls by 2.2-to-1 – more bearish than last month.<\/span>
\nCall OI is highest between 47 & 51. <\/span>
\nPut OI is highest between 42 & 49 with the biggest spikes at 45, 46 and 48.<\/span>
\n There’s overlap between 47 & 49, but since puts dominate, expiring most of those worthless would cause more pain than trying to expire both calls and puts worthless. With QQQQ closing at 49.77 today, the market is already positioned to accomplish the mission. Flat trading or slightly down<\/strong> movement is called for. <\/span>
\nIWM<\/strong> (closed 69.36)<\/span>
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\nPuts out-number calls by 2.5-to-1 – more bearish than last month.<\/span>
\nCall OI is not steady. There’s a spike at 64 and a block between 68 & 70.<\/span>
\nPut OI has a spike at 60 and a block between 64 & 67. <\/span>
\n IWM closed at 69.36 today, so let’s ignore that put outlier spike at 60. Also, puts dominate calls, so let’s not concern ourselves with the small call spike at 64. What’s left is two blocks that meet at 67\/68. If the market closed unchanged relative to today’s close, most options would expire worthless. Slight down trading<\/strong> would be fine…as long as the stock didn’t drop much below 67.<\/span>
\nOverall Conclusion:<\/strong> Once again the bears bet big on a big drop, and once again they’ll most likely be wrong. Flat trading or slightly down movement<\/strong> is called for to expire most options worthless and cause the most pain.<\/span>
\nHave a great night.<\/span>
\nJason Leavitt<\/span>
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