{"id":4952,"date":"2011-10-17T16:18:17","date_gmt":"2011-10-17T21:18:17","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=4952"},"modified":"2011-10-17T16:18:17","modified_gmt":"2011-10-17T21:18:17","slug":"using-putcall-open-interest-to-predict-the-rest-of-the-week-22","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=4952","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, QQQ 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?
\n<\/span>
\nSPY<\/strong> (closed 120.23)<\/span>
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\nPuts out-number calls 2.4-to-1.0 – about the same as last month.<\/span>
\nCall OI is highest between about 118 and 127, and there’s a huge spike at 141. <\/span>
\nPut OI is highest between about 98 and 122. <\/span>
\n There’s some overlap between 118 and 122, and with today’s close at 120.23, lots of pain will be felt by both call and put buyers. Flat trading<\/strong> the rest of the week will expire most options worthless, but since puts far out-number calls, a slight move up<\/strong> will cause even more pain.<\/span>
\nDIA<\/strong> (closed 113.90)<\/span>
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\nPuts out-number calls 1.3-to-1.0 – slightly worse than last month.<\/span>
\nCall OI is highest between about 114 and 120, and there’s a spike at 125.<\/span>
\nPut OI is highest between 105 and 115.<\/span>
\n There’s some overlap around 114\/115, and with today’s close at 113.90, DIA is already positioned to cause maximum pain. Hence flat trading<\/strong> is needed. But as I’ve stated numerous times in previoud reports, the OI is so low compared to SPY, it’s hardly worth looking at.<\/span>
\nQQQ<\/strong> (closed 57.28)<\/span>
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\nPuts out-number calls 1.9-to-1.0 – more bearish than last month.<\/span>
\nCall OI is highest between about 54 and 58. <\/span>
\nPut OI is highest about 47 and 56.<\/span>
\n There’s some overlap between 54 and 56. With today’s close at 57.28, at first glance, QQQ is slightly higher than it needs to be to cause max pain, but when you consider puts far out-number calls, QQQ needs to close slightly higher than the overlap. Flat trading<\/strong> the rest of the week is what’s needed to accomplish the mission of expiring most optins worthless.<\/span>
\nIWM<\/strong> (closed 68.98)<\/span>
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\nPuts out-number calls 2.5-to-1.0 – slightly less bearish than last month.<\/span>
\nCall OI is highest between about 68 and 74.<\/span>
\nPut OI is highest between about 57 and 70. <\/span>
\n There’s some overlap between 68 and 70, and with today’s close at 68.98, IWM is already positioned to cause lots of pain. So flat trading or a slight move up<\/strong> the rest of the week would do the trick.<\/span>
\nOverall Conclusion:<\/strong> Thanks to the rally that has taken place the last two weeks, the market is positioned to cause lots of pain among option buyers. Flat trading<\/strong> the rest of the week is what’s needed to continue this. A slight move up<\/strong> would be fine too. This analysis of course is purely based on an invisible hand theory which says the market will mysteriously gravitate towards certainly levels. Left alone, it happens often, but news obviously can trump everything on a short term basis.<\/span>
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