Will Friday’s Open Interest Block the Bulls Again?

Last week here I said SPX was likely to make a new high – Check ✅ (albeit by a very small amount). I also showed that both the Wednesday and Friday open interests had calls stacked at 240. Going into the week I believed that the right set-up existed for bulls to really push SPY over those high calls, but our standstill market lacked the enthusiasm it needed to garner any real momentum (in the indices; several individual momentum stocks offered great long opportunities).

Open Interest:

SPY-W: (28 of 35 pins since inception of Wednesday expiration).* This is probably one of the most bullish open interests I have seen for SPY in a while. There is currently no real call resistance in the way of SPY pushing over 240 and rallying (note however, there is something in the way for Friday’s expiration). The current best pin is 240 with small put support at the 238/239 level and then no other notable put support till 230. 

SPY-F: (21 of 30 pins since I began tracking Friday’s).* Last week SPY closed over its high calls which usually leads to continued strength. SPY  indeed did make a new high last week; however, the lack of momentum was very uninspiring and there wasn’t any follow through. Although this coming Wednesday’s expiration is conducive to the bulls finally pushing SPY over 240, Friday’s expiration could pose an issue. One thing to note about this current open interest is it’s a monthly. That means the calls and puts have been building for a lot longer than we see on weeklies and less likely to shift throughout the week. The current best pin is 240 with some call resistance at 241 and 242. If SPY is miraculously able to make its way higher early in the week (especially if it’s done through a gap higher) then all those calls can actually help push SPY even higher (through delta hedging). Plus, if SPY can get more than a tiny drift over 240, then both a short squeeze and FOMO will add fuel to a larger move. However, if SPY does not get over 240, or does so without any real momentum (similar to the last few weeks), then it will likely be pushed back lower by all the calls. The other side of this open interest is if SPY does get below last weeks low (238.13), then it may be headed for its unfilled gaps (which I believe is a great buying opportunity) because there is no put support till 235. Note that because of all the calls on Friday’s expiration, the longer it takes SPY to get over 240, the less chance it will as the week progresses (unless it’s late day Friday once most of the calls have been drained of all premium and closed out).

In sum, based on the recent lack of momentum and Friday’s open interest, it will be tough for SPY to sustain a rally over all time highs unless it does so early in the week. However, if there were to be a gap over 240 that holds or SPY was able to gain momentum over 240 early in the week, then the combination of shorts covering, FOMO and delta hedging could keep it pushing much higher. In the absence of SPY being able to get over 240, SPY could be set up for another rangebound week that results in a 240 pin on Friday. Alternatively, should SPY take out last weeks low it could be headed for the gap fills below, which likely present a great buying opportunity.

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

Wednesday 5/10: successful pin. 

Wednesday 5/12: successful pin. 

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