October 11th expiration week commentary and open interest

So far our government has not let down our expectations of being useless and as a result a choppy week ensued. Last week I wrote that, “If we do trade down, we have support around 1683 [SPX] and if we drop even further, I still believe 1670 will hold.” So far 1670 on SPX has held and it was a great place to buy on Thursday for a bounce play. I will continue to key on that number as support next week if we don’t resume some type of trend. As I’m sure you have read, October is known for volatility and we are off to a good start. I do still believe that we go up into year end and that the high is not in.

One thing that I would like to see to help the bull case going into the new year is the percent of stocks above the 50 day moving average make a higher high. See chart below

The other thing I would like to see is more fear build up. If everyone is expecting a rally into the new year, then that could really put a hole in my thesis. I have heard a lot about people buying VIX contracts, which definitely helps; however I looked at both the October and November open interest and wasn’t too impressed. There is definitely more call than put buying, but I would like the skew to be stronger. Both looked fairly similar. Below is Novembers, which better reflects the fear about a government default since the deadline to raise the debt ceiling is October 17th.

Overall though there is no doubt that many stocks are acting well. Earnings season begins on Tuesday and if many companies can surpass expectations (whether it’s because of buybacks or low expectations) then I expect a good end of the year. Of course, too many downside surprises could derail the whole premise that there will be a chase for performance into the end of the year. Two of the more important earnings announcements next week will come on Friday with JPM (open interest below) and WFC. Given the under-performance of the financials recently, good numbers out of them can begin to spark more confidence and energy back into the financial sector.

Technical comments and open interest graphs for select stocks expiring October 11th.

SPY – As a bull this isn’t really what I wanted to see – unless most of those 173 calls were bought by one or a select few that knows something (wouldn’t put it past members of congress to do that). Either way, since the 173 is a fair distant away from where we closed on Friday (168.89) there still is plenty of room to the upside.

AAPL – Definitely stuck recently and no doubt seeing the 500 calls week after week isn’t helping, but overall I do think it has been acting constructive. Below is your deja vu open interest.

AMZN – technically it looks sound and they hired 40% more employees for the holiday season than last season. Earnings are on October 25th and there could be an anticipatory move up. However, Barron’s had a negative piece on AMZN this week and based on how the market reacts next week will give us clarity as to whether investors are still suddenly doubting their future prospects. Calls and puts are fairly balanced as usual.

CMG – bounced perfectly off its 20 day MA twice this week and closed at 52 week highs. The set up so far looks good for next week assuming the market participates. The higher put open interest also bodes well I think

FB – had an inside week, but shows no signs yet of slowing down. The amount of calls that build week after week though does make the trade a little less attractive to me.

GOOG – As I stated last week, based on both the daily and weekly chart, I don’t see what the bullish case is, but once again I’m seeing quite a few respected traders expecting price to rise. I don’t trade GOOG much so I will probably continue to stay away, but it does seem as if the market is beginning to discount a negative earnings surprise. Below is this weeks open interest.

JPM – not the prettiest technical chart and could make the case for a head and shoulder topping pattern. I think this Friday will likely make or break the next direction. Assuming the calls were bought and not sold, seems more are expecting an upside surprise, which would be consistent with more recent quarters.

LNKD – has recently been choppy and not as technically strong as other high momentum names. Taking a bit of a broader look however, the weekly chart still looks bullish and price has held above its weekly 10 day MA for two straight weeks after beaching and then touching it respectively. Puts outweigh calls with 240 and 250 being most active.

NFLX –  magnet to top callers, chart still looks bullish. A little odd to see so many calls so far away from price (355) with no expected catalyst. 
PCLN – not much more I can tell you about the chart that you don’t already know.  I think open interest is becoming less relevant as price moves up because options have become so expensive and spread so ridiculous that the ones being bought are way out of the money. Although I must admit we have seen some huge one day recently.
SINA – I sent out a tweet Thursday about the potential for a breakout after the twitter S-1 was released. Whether that was indeed the catalyst or not, it did breakout on Friday and closed at 52 week highs. Most active option is the 83 puts.
TSLA – finally broke through its chastity belt (AKA its 20 day MA) exciting bears, if you know what I mean. However, it only lasted one day ended the week above. Highest open interest is the 200 calls. I would be remiss not to mention that I’ve noticed a bit of a character shift in the options as less puts have been trading relative to calls. Whether that will amount to anything remains to be seen. 
Good luck next week.

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  1. nice read, imo, i believe monday will set the trend for the rest of the month. good luck thx for the oi charts.