Last week here I suggested that both the Wednesday and Friday SPY open interest supported a rangebound week. That came to fruition and there really only was one good opportunity which came Tuesday when SPY fell below two levels of high puts. Knowing where the likely pin would be Wednesday, combined with technical support levels, the early week dip offered a good risk to reward trade to the upside. They don’t always work, but in this case it worked very well with correct timing.
This type of information also works well with momentum stocks and something we use in my premium service. Just to give you a couple examples, If you bought FB or NFLX when they broke out last week then you probably lost money. Although this time we didn’t buy puts on those stocks to play for a pin, we knew the risk to reward of going long was not in our favor. The technicals said breakout, but the open interest said watch your wallet. Here is what they looked like last week.
As you can see there was a lot of call resistance on FB starting at 172 and on NFLX starting at 180. In combination with a fairly flat market the set-up for a breakout wasn’t very good. Trading is all about putting the odds in your favor. This kind of information helps immensely with that. BTW, that information can also be used to sell call spreads (or put spreads if there is high puts instead of calls). To understand this concept better you can read this post about option pinning here.
Open Interest for September Opex:
SPY-W: (42 of 52 pins since Wednesday expiration inception).* This is a rather complicated open interest and I assume that the 244 and 245 strikes with high calls and puts were some type of strategy likely put on by one party. I have no idea the intention of that strategy so I can’t be helpful in that regard. What we know is that if SPY gets to 248 it will face a lot of call resistance and if we ignore the 244 and 245 strikes then there is put support at 246. If price does fall below 246 then perhaps SPY will pin somewhere between the 244 and 245 strikes. There isn’t much more I can say about this particular expiration. Perhaps prior to Wednesday the party that put on the 244/245 strategy will have taken some or all of it down making things more clear.
SPY-F: (32 of 46 pins since I began tracking Friday’s).* The current best pin is 245, which would mean another week where despite what happens, SPY would end back in the same range it’s been in. There is some put support at 242/243 and then bigger support at 240. There is some call resistance at 247 and 248 and much larger call resistance at 249 and 250. Should the market be slow similar to last week, then the smaller put support and call resistance will likely act as walls; however, if things get more volatile than the more outskirt numbers (240, 249, & 250) would be more important to pay attention to.
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Wednesday 9/6: Successful pin.
Friday 9/8: This one is tough to call. There was really no great pin – just a range. I decided in this type of situation I will call it as a failed pin.