How Much Further Down + A Big SPY Option Buyer

One month down, 11 to go. The market is doing a decent job of getting rid of the “animal spirts” left behind from 2013. Despite the oversees issues and the development of tapering, I don’t yet see a reason to believe the bull run is over. So far what seems to be taking place is both a correction through time and price. We aren’t getting the quick snapback we became accustomed to in 2013; likely because too many traders seem to be anticipating it (myself included). The market never makes it that easy and I wouldn’t be surprised if we didn’t get a V shape reversal this time around.  The two scenarios that seem most likely to me is that we continue to slowly drift a little lower until we shake more of the excess bullishness off or at some point we have a huge gap higher catching people either short or underinvested (and subject to chasing).

As you can see below, the SPX, IWM, and QQQ are all holding their 20 week moving averages, while the XLF closed barely beneath it. This tells me that the selling thus far has been orderly despite the daily swings that may not feel orderly. Without knowing how long this corrective action will take, I am keeping my positions small and have been positioning myself in what I deem to be safer stocks rather than the high beta momentum stocks (see here for the stocks I highlighted this week). One last thing. It’s hard to get too bearish on this market when stocks like GOOG, SCTY, WYNN, FBNFLX and TSLA are at or near all time highs. Scroll down past the weekly charts to view weekly open interest for SPY, IWM, QQQ, and the XLF.

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Weekly Open Interest:

SPY: So this is interesting. There were approximately 12,000 181 open calls on Friday morning. Now there is about 94,000. Not sure exactly under what circumstances they were bought, but I was told that 50,000 were bought in the morning and then I noticed a huge amount being traded off the ask price during the last hour of the day (including the 15 min after the market closed when indexes can still trade). It could mean nothing, but it is a bit unusual and maybe someone is betting on a gap up. Whatever it may mean is purely speculative so take it for what it’s worth.

spy.1.31

IWM:

IWM.1.31

QQQQQQ.1.31

XLFXLF.1.31

Stay tuned for weekly open interest on several stocks……

3 Enlightened Replies

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  1. Patrick Bryan says:

    I enjoy your clear and concise analysis and appreciate your weekly posting of Call/Put options, especially on Apple:-)

  2. bagholder says:

    animal “spirits” =)

    SPY calls as a hedge against a short position perhaps?

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