from jason levitt
Options expire this Friday, so let’s 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’s 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?
SPy june
Puts out-number calls 2.2-to-1.0 – the same as last month.
Call OI is highest at 160 and between 162 and 168.
Put OI is highest at 120, 130, 135, 140, 145 and between 148 and 166.
There’s a little overlap in the low 160’s, but the highest call strikes in the mid 160’s only overlap by one strike. The dividing line seems to be 166 – a close there would expire all the highest put open-interest strikes and most of the call OI strikes worthless. Today’s close was at 164.44, a good level but slightly below ideal. Flat trading the rest of the week would cause a lot of pain; a small move up would cause even more.
diamonds/dow
Puts out-number calls 1.3-to-1.0 – about the same as last month.
The big call spike is at 149, and then the following strikes also have decent volume: 152 – 155.
Put OI is highest at 145, and then it tapers down to 139 and up to 151.
All the big (relatively speaking) put spikes are below the big 149 call spike, so let’s say a close at 149 is ideal. Today’s close was at 151.78, above the ideal. As of now, some of those 149 call buyers will make money. A move down is needed to close those options worthless.
Overall Conclusion: The movement needed the rest of the week to cause the most pain differs between these ETFs. SPY needs a small move down; QQQ needs a small move up; IWM doesn’t need any movement. SPY and IWM are most important because they have the most volume. The net of these is flat or slightly up movement the rest of the week will cause the most pain, so basically the market can continue to chop around in a range as long as it doesn’t drop much the rest of the week.
