A Note on Pinning & Open Interest + OI updates – March 5th

Pinning can be a great tool to see where your stock may end up at the end of the week. Even though I give you the open interest at the start of each week and often mid-week, it’s still best used at the end of the week. However, there are many caveats to the workings of pinning. For instance, if there was large block call buying of a stock and that is the highest open interest, it could be someone knows something and those calls won’t act as resistance. Another example, would be an extremely bullish or bearish environment. The market this week has been extremely bullish and given that back-drop many stocks are being chased higher. When that happens open interest really doesn’t help as much as a guide. Perhaps you will see more resistance at those high call strikes, but they can easily be broken. Don’t forget, if you assume that the the other side of the bet is a market maker, than he/she supposedly is hedged and there is no reason for him/her to try to push the stock back down. With regards to a bearish environment (or news, events, etc related to a certain stock), you probably already know that high put strikes can much more easily be taken out.

I typically don’t trade with weekly options as I’ve found I lose more over the long run. The wins can be VERY lucrative and often make up for tons of losses, but if I want to survive as a trader I have to manage risk first and not always look for the 500-1000% moves. Having said that, during weeks where there is obvious momentum (bullish or bearish), I do dabble into weeklies a little more as the risk/reward is a bit more favorable than during more mute market backdrops.

So, given what I just said when viewing these open interest updates know that strong momentum limits the use of these. These were updated this morning and do not include any of the trades that were bought/sold today. For some of them (such as FB & AMZN), I imagine the highest strikes have shifted.












You may also be interested in reading: about Pinning and about Delta Hedging.