{"id":3720,"date":"2010-11-15T17:06:21","date_gmt":"2010-11-15T22:06:21","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=3720"},"modified":"2010-11-15T17:06:21","modified_gmt":"2010-11-15T22:06:21","slug":"using-putcall-open-interest-to-predict-the-rest-of-the-week-11","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=3720","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 120.03)<\/span>
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\nPuts out-number calls more than 2.3-to-1 (last month was 2.6:1). Bearish sentiment remains high.<\/span>
\nCall OI is highest between 113 & 125 with spikes at 115 & 120. <\/span>
\nPut OI is highest at 122 and below. <\/span>
\n At today’s close, those who bought 115 calls probably have a decent profit, but otherwise with pretty much all the put buyers are under water (even those who bought the 122 strike likely bought when SPY was further in the money, so even they are down money), most option buyers are showing a loss. A flat market<\/strong> the rest of the week would cause the most pain, and a small move in either direction would do nearly the same.<\/span>
\nDIA<\/strong> (closed 112.25)<\/span>
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\nPuts outnumber calls about 1 to 1 – slightly less bearish than last month.<\/span>
\nCall OI is highest between 109 & 118.<\/span>
\nPut OI is highest between 105 & 112. <\/span>
\n There are matching spikes at 110 & 112 with most other call OI falling above 112 and most put OI being below 110. Hence a close somewhere between 110 & 112 would cause the most pain. Today’s close at 112.25 puts us at the upper side of the range, so flat-to-slightly-down<\/strong> trading is needed the rest of the week.<\/span>
\nQQQQ<\/strong> (closed 52.29)<\/span>
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\nPuts out-number calls by 2-to-1 – slight less bearish than last month.<\/span>
\nCall OI is highest between 49 & 54. <\/span>
\nPut OI is highest between 42 & 52.<\/span>
\n There’s solid overlap between 49 & 52, and since put OI easily outnumbers call OI, a close on Friday somewhere in the top half of the overlap is likely to cause the most pain. With today’s close at 52.29, flat-to-slightly-down<\/strong> trading the rest of the week will accomplish the mission.<\/span>
\nIWM<\/strong> (closed 72.04)<\/span>
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\nPuts out-number calls by 3.2-to-1 – more bearish than last month.<\/span>
\nCall OI is not steady. There’s a spike at 62, a block between 65 & 67, and a block between 70 & 72.<\/span>
\nPut OI is huge from 72 and below. <\/span>
\n Since put OI far out-numbers call OI, let’s focus on the puts. With today’s close at 72.04 – the top of put OI block – virtually all put buyers are under water. Flat trading or a small move in either direction<\/strong> wouldn’t change the situation.<\/span>
\nOverall Conclusion:<\/strong> The bears once again bet big on a downside move, and barring a massive sell off the next couple days, they’ll once again be wrong and lose money. Flat trading<\/strong> the rest of the week would cause the most pain. A small move in either direction<\/strong> would be fine too. As long as we don’t get a massive sell off, lots of pain will be inflicted.<\/span>
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