January OPEX

Last week here I outlined that the open interest favored the bulls. I also stated that because of Wednesday’s open interest, should SPY get below 273, it was a buy. If you bought when SPY went to 272.92 your indeed did very well.

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Open Interest:

SPY-W: (51 of 70 pins since Wednesday expiration inception).* Clearly price is already over the high calls at 276; however, they are not over the 280 calls. Given that 280 is also a psychological round number that often acts as resistance in it’s own right, it’s likely fair to assume that price will close under 280 by Wednesday expiration. Should price start bending under 277.5 early in the week then it’s possible for price to also get below the 276 calls by Wednesday expiration, but given the recent strength of the market I would wait for evidence of a weak market before making that assumption. 

SPY-F: (43 of 64 pins since I began tracking Friday’s).* The only strike that really sticks out is the 275 calls. Of course there is also the obvious high strike calls and puts at 270, but on monthly OPEX the obvious pin when far from price very rarely works out. I wouldn’t pay any attention to those 270 calls/puts unless SPY were to close below 275 next week and then it can be taken more seriously if (and only if) market internals are weak. With regard to the 275 strike, since price closed Friday already far into the money, I wouldn’t necessarily count on the 275 calls dragging price back down. In fact, delta heading could even lead it higher (although that delta hedging might have already begun last week). Thus, taken at face value, this is currently a bullish open interest with very little call resistance in the way and only the psychological round number (280) that often acts as resistance upon first approach. With that said, I don’t think anyone would be surprised to see price pullback a bit; thus, should SPY close below 276 then the chances increase that price move back below the 275 calls. With that said, should SPY pull back to 276 and hold (even if it dips below but pops right back up) then instead it would actually be a great long entry.

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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 of my site.

Wednesday 1/10: Successful pin.

Friday 1/12: Failed to the upside although it did stay below the highest calls.

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