Lessons you can learn from last weeks open interest: Last week here I showed three SPY expirations as we now have Monday expiration. I showed where the best Monday pin would be, but said that if we opened and held over 275 that it was a go with and it likely wouldn’t pin. That indeed worked out well. For Wednesday’s expiration the open interest drastically changed which I posted over twitter on Tuesday morning. The calls that had been added on Monday completely rejected price and there were pretty much no puts to hold it up. Then there was the Friday expiration with high puts at 270. Upon the first touch it was defended, but on the second touch went right through (always remember the first touch is almost always defended, but the second is not – this applies to the call side as well). I mentioned over Twitter if SPY couldn’t get back over the 280 puts the next stop was 265. The low on Friday was 264.82. And yet after 265 held, price climbed back up to close over most the puts (hurting any put holders that didn’t sell) minus the 270’s.
To learn more about delta hedging see here.
If you have not yet subscribed to my weekly freebie you can do so below to get next weeks free trade idea sent to your mailbox Monday morning. Last week was NFLX and it was a big winner. In SassyOptions premium where it’s not just a trade idea, but comes with real time alerts we took NFLX calls from $2.18 to a high of to $7.3 (although if we held they went on to over $10). The stats for the weekly freebie since I began sending them are as follows :
- 7 wins (I only count wins when they are big wins).
- 1 that didn’t trigger
- 3 scratch trades
- 1 loss
Open Interest: If you want more information on how to read the high calls and puts in the open interest see here.
SPY-M: (0 of 1 pins since Monday Expiration inception).* There is a wide range here for a pin, but we can learn from Monday’s open interest is that price is unlikely to fall back under 265 or rally past 277. There is some call resistance at 270 and 271, but not enough to stall price if buyers really step in. If the market opens where it closed Friday and just chops around then those small calls may act as resistance, but other than that they aren’t worth paying much attention to.
SPY-W: (56 of 77 pins since Wednesday expiration inception).* The only information we can currently take from Wednesday’s open interest is that price should close over 262 and if at some point early next week we dip to that level it is a buy. There is currently very little call resistance to the upside.
SPY-F: (45 of 70 pins since I began tracking Friday expiration).* As you can see there is a very obvious pin a 273; however, you should not automatically assume that is where price will close Friday. First, obvious pins often don’t work and it doesn’t get more obvious than this. Second, this was likely put on by one individual/fund and that entity could close the position before expiration and completely change the open interest.
With that said, this obvious strike can still be useful in context with other information. First, at some point during the week 273 should act as a magnet. If it doesn’t and price never gets there then we can deduce that price is still weak. If price gets to 273 (and maybe over-reaches), but continues to find its way back there then we can conclude we are in a choppy rangebound market and trading should probably be limited (as there isn’t much edge). Finally, if price gets through 273 and doesn’t look back we can conclude a bullish environment and look for long plays, including long plays in SPY or SPX itself.
Therefore, although the best pin for Friday is indeed 273, assuming price will close there on Friday could lead to poor trading decisions when that pin may not come to fruition. Instead, use the open interest as a tool to determine the trading environment based on where price is relative to that strike. And don’t forget check open interest for updates as this position could be closed at any point before expiration. I may post updates to twitter, but unless you are part of my service don’t necessarily rely on me.
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- Weekly Open Interest and Strategy Post – Open interest and technical analysis for how to trade AAPL, AMZN, BABA, FB, GS, GOOGL, NFLX, TSLA for this coming week. This does not include my private twitter, exact trades or any other updates.
Monday 2/26: Failed to the upside.
Wednesday 2/28: Successful pin.
Friday 3/2: Failed to downside, but AMAZING recovery off the high 265 puts.