{"id":6549,"date":"2013-04-16T15:09:34","date_gmt":"2013-04-16T20:09:34","guid":{"rendered":"http:\/\/leavittbrothers.com\/blog\/?p=6549"},"modified":"2013-04-16T15:09:34","modified_gmt":"2013-04-16T20:09:34","slug":"using-putcall-open-interest-to-predict-the-rest-of-the-week-40","status":"publish","type":"post","link":"https:\/\/blog.leavittbrothers.com\/?p=6549","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 157.32)<\/span>
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\nPuts out-number calls 2.1-to-1.0 – slightly more bearish than last month.<\/span>
\nCall OI is highest between 154 and 162.<\/span>
\nPut OI is highest at 135 and between 140 and 157. <\/span>
\nThere’s clear overlap between 154 and 157, so a close within the range would cause a lot of pain. But since put OI is heavier than call OI, I’m willing to let some call buyers make money at the expense of causing even more put buyers to lose. So a close near the top of the range would cause max pain. Today’s close was at 157.32 – the top of the range. Perfect. No movement<\/strong> is needed the rest of the week.<\/span>
\nDIA<\/strong> (closed 147.29) <\/span>
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\nPuts out-number calls 1.3-to-1.0 – slightly more bearish than last month.<\/span>
\nThe big call spike is at 143, and then there are moderate spikes at 146, 149 and 151. <\/span>
\nThe big put spikes are at 142 and 144, and there’s one moderate spike at 139.<\/span>
\nTo cause max pain, we need those spikes to close worthless or as close to worthless as possible. Closing at 143 would accomplish this. The big call spike and the three smaller ones would expire worthless, and the biggest put spike would have some value, but when factoring in the cost to enter a position, it’s unlikely buyers of the 144 puts will be profitable. DIA closed at 147.29 today – well above our desired level. A big move down<\/strong> is needed for max pain. The caveat of course is that volume is so tiny compared to SPY and IWM, DIA numbers don’t really matter. <\/span>
\nQQQ<\/strong> (closed 69.51)<\/span>
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\nCalls out-number puts 1.2-to-1.0 – about the same as last month.<\/span>
\nCall OI is highest between 68 and 71<\/span>
\nPut OI ramps up from 64 to 69, with 69 being the biggest spike.<\/span>
\nThis analysis is easy. The biggest call and put spikes fall at 69, and there’s very little overlap. Hence a close at 69 would cause the most pain. QQQ closed at 69.51, slightly above our ideal level.. No movement<\/b> or a slight move down<\/b> the rest of the week is needed. <\/span>
\nIWM<\/strong> (closed 91.67)<\/span>
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\nPuts out-number calls 3.3-to-1.0 – slightly more bearish than last month.<\/span>
\nCall OI is highest at 93, 94 and 97.<\/span>
\nPut OI is highest between 86 and 93.<\/span>
\nHigh OI calls and puts meet at 93, and since there are two distinct zones and very little overlap, a close there would cause max pain. IWM closed at 91.67, slightly below our ideal level. If the stock doesn’t move the rest of the week, a lot of pain will be felt buy option buyers, but if IWM can move up slightly<\/strong> max pain will be achieved. <\/span>
\nOverall Conclusion:<\/strong> Miraculously, yesterday’s massive sell-off and today’s bounce have put the market pretty much exactly where it needs to be to achieve max pain. No movement<\/strong> the rest of the week would be fine. A small move up<\/strong> might produce slightly more pain. <\/span>
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