October Expiration Week and Open Interest

Fun times this week. Although I did not expect to get down to 1640, I did say that if 1670 breaks to step out of the way. I was traveling last week and less available, but hopefully you got this tweet on Wednesday morning.

That was also a good place to go long. In hindsight it was a place to go really long. Although we only steadily went on to end the day a little higher, we had the second largest gap up of the year the next morning.

So what’s next? Well with Yellen now in the picture, it seems that taper-talk has tapered and that adds more fuel to the fourth quarter fire. Based on the strength of Friday’s close I wouldn’t be surprised to see another gap up on Monday morning; however, a little backing and filling before making new highs would be healthy. Ideally staying above Friday’s low of 1688.52 as we digest gains next week would be good. If we drop below there I would expect 1675-1676 to be support. Below there and I would become much more cautious. The two catalysts that I think can hurt the bullish case going forward is the government circus and a hideous earnings season that isn’t baked in. I say hideous because it seems expectations have already been ratcheted down.

The VIX expires on Wednesday morning. Here is open interest.

Additionally, I would also be looking for some rotation in the fourth quarter. I believe we will still see strong high momentum names do well, but they may under-perform in comparison to names that could play catch up such as financials, solars, airlines etc.

Open interest and TA commentary

SPY – Technically it looks strong. The highest calls are at 175. The highest puts you actually can’t see because I condensed the graph, but they are at 160.  Currently the most painful pin to option buyers would be at 170. Look for updates during the week.

AAPL – Looks like a compelling long to me right now which is why I am currently long. Having said that, seeing those 500 calls puts a downer on the trade. It’s not impossible to break that 500 wall, especially since many of the calls were bought a long time ago and due to premium are already dead money; however, it won’t be easy. Only if we can break through 500 with strong volume and stay above it for a substantial period of time, will I believe it holds this week. That is because I think people will begin to chase it. Both the IPad launch event (10/22) and earnings (10/28) aren’t till after expiration.

AMZN – It closed right below the 10 and 20 day MA. I think much of that had to do with high call open interest at 310 last week. Either way, I think once it gets over 312 it’s a good risk/reward long headed into earnings (10/24). If you go long 311/312 would be a prudent stop. Usually open interest has a tighter range on AMZN and we will likely get that after the first couple days in the week.

CMG – I think I have probably said every week that next week might be the week and have been wrong. Well we finally broke out and just in time for earnings this Wednesday. It closed at all time highs Friday and looks to continue higher into earnings. I likely won’t play earnings, but I am bullish for what its worth (hint: my opinion is worth nothing, so trade your own plan). Calls outnumber puts, buts the strikes on the puts side have higher volume, 420 being the highest. The highest calls at 480.

FB –  It’s currently sitting just below the 10 day MA. As you would expect calls outweigh puts. If FB continues to pullback you may see calls close out before the end of the week since many are currently in the money.

GOOG – It once again bounced back from breaching 845, which is the neckline of the head and shoulders. I wouldn’t be surprised to see it run up into earnings Thursday; however, its lack of strength recently does seem concerning. My guess is that earnings will be the determining factor between breaking the neckline or going back to new highs.

LNKD – has not been acting as strong as other social media names and is below key moving averages with the 10 and 20 day MA sloping down. It also had a very meager bounce on Thursday and Friday, which is concerning. They don’t report till 10/29. Highest open interest is the 230 calls.

NFLX – It had a nice recovery on Thursday after the upgrade, but then failed to continue higher on Friday. Earnings aren’t till next week (10/21). Highest puts and calls both at 300.

PCLN – For anyone who caught that move down, congrats! I have no clue where it’s going next week, but some consolidation and less volatile price swings would be ideal.

TSLA – It’s definitely showing some signs of weakness closing below its sacred 20 day MA 4 days in a row. Whether that weakness plays out into anything meaningful though I have no idea. Shorting this has been a widow-maker all year and a scary trade. Highest open interest is the 165 puts.

Good luck next week.