Will That 240 Strike Come into Play This Week?

Last week here in the summary of my post I wrote: “In Sum, the grind higher is likely to continue in SPY; however, a pullback into support is possible and also a buying opportunity if it happens toward the beginning of the week…..“. This was available for anyone to read and was a HUGE trade for anyone that bought the Wednesday morning pullback. Members of SassyOptions read this extra information over the weekend and importantly had my guidance and real time trade alerts, which were also HUGE.

The SPX low on Tuesday was 2403.59.

Open Interest:

SPY-W: (30 of 38 pins since Wednesday expiration inception).* The obvious level of resistance is 245 and not far away from where SPY closed. SPY closed over its high calls on Friday which tends to lead to continued strength, so if price gets over 245 and doesn’t look back than delta hedging may push it higher even faster. However, if SPY stays below that level or stalls near it and those calls remain open, then price is very likely to close at or below 245 on Wednesday. The current best pin is 242.5 and there is very little put support should SPY break lower. 

SPY-F: (24 of 32 pin since I began tracking Friday’s).* The obvious thing that sticks out is the best pin at 240. I have said this before, but to reiterate, the very obvious pin where one strike trumps all the others with both calls and puts, has a poor track record for working. However, should the market sell off fairly hard (perhaps because of the Comey testimony, or the ES futures roll, or just because), it’s worth noting that 240 could become a magnet. To the upside there is small resistance at 246, but not much else.  

In sum, Friday’s close over its high calls tends to lead to continued strength, but SPY will need to get and stay over the 245 calls if it’s going to continue to rally prior to Wednesday’s expiration. The Friday open interest isn’t very helpful unless the market starts to sell off  hard and 240 becomes a magnet.

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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 5/31 : Successful pin. 

Friday 6/2: Failed pin to the upside. 

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