Last week here I showed the three different open interests for SPY and detailed where things could end up based on the high calls or puts. Importantly, I described that the Friday expiration had the risk of delta hedging to the downside particularly at the end of the week (that phenomena leads to a swift and large move lower when to the downside). That ended up happening on Thursday and then again Friday. If you don’t understand that concept, I implore you to read about it as it wasn’t the first and won’t be the last time we see delta hedging.

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 BABA and it didn’t trigger. The stats for the weekly freebie since I began sending them are as follows:

  • 9 wins (I only count wins when they are either big wins or where there was enough time to take profits).
  • 2 that didn’t trigger
  • 3 scratch trades
  • 1 loss

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Open Interest: If you want more information on how to read the high calls and puts in the open interest see here.

SPY-M: (3 of 4 for pins since the inception of Monday expiration).* Price closed on Friday at 258.05 which is under the high puts of 259 and 262.5. If we open under there, which seems very possible based on the close then it would be a good opportunity to see if a tradable bottom forms. If it does and we start heading back up it’s possible we squeeze back to close over the high 259 and maybe even 262.5 puts. If, however, we do rally to the 259/260 area and price is rejected then we are likely headed back to a lower close. Also, if price opens lower than those puts and just trends lower all day with very small bounces then those puts aren’t going to save price. Finally, if we open above those puts or even just above the 259 puts then it’s possible we close over 262.5 to hurt those put buyers; however, that would also make it harder to believe a bottom was put in. It’s not impossible because the market often does what is least expected, but it would make it harder to trust. 

SPY-W: (59 of 80 pins since the inception of Wednesday expiration).* Again Wednesday’s expiration has more puts, but price is currently under all of them. This can easily change by the time Wednesday comes, but for now as long was price remains under 260 then there isn’t much to prevent it from going much lower. If, on the other hand, we do get a tradable bottom then there is the chance we can rally back over the 262 puts, possibly the 265 puts and if we really squeeze than back over the 270 puts although 1) that would be a huge feat and 2) those puts might be gone by Wednesday. In fact, if we open lower than 260 next week it’s possible that all of those puts will be gone by Wednesday because the put buyers might take profits and close out. 

SPY-F: (46 of 73 pins since I began tracking Friday’s).* Note the markets are closed on Friday so this expiration is actually on Thursday. Again we mostly see puts with price currently under the highest puts of 260. In this case however, there is actually some put support under where price closed Friday. 253 to 255 has small, but some put support and then 250 (also a round number that could be considered technical support) has put support as well. Again, by the time Thursday rolls around we could see a very large change in this open interest especially if we open way lower Monday and/or if we find a tradable bottom. 

Pinning Stuff:

*An explanation as to how I define range pinning can be found here. More information about what pinning is can be found under the education section or here.

Monday 3/19: Successful pin.

Wednesday 3/21: Successful pin.Friday 3/23: Failed pin to the downside along with lots of delta hedging.

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