SPY Open Interest and What’s up for Next Week

Well interesting week to say the least. If you have been following my tweets all week, then you know there was heavy 164 SPY puts being bought on Tuesday. In hindsight, they were very early, but by the end of the day Friday, they went into the money. Although, oddly enough they actually didn’t profit very much or took a loss. I saw many start selling them at about 3:00pm EST (could have been late comers who followed in on the backs of the big purchases or could have been retail brokers closing out peoples positions). Either way most had been bought for .30 to .35 cents and I saw probably 1/3 sell for between .06 and .10 cents. There were also some that were able to capture the full downside move (even selling after the market closed for the 15 minutes that ETF’s can still trade). Those were sold for around .40 cents. So overall, although they were right in the end, it was mostly a losing trade.

Regarding the market as a whole; I think it’s fairly obvious that we have seen a shift starting to take place. It is likely welcomed by most people, as bulls would like a reset and bears, well, have been desperate for it. One thing I want to note on that. This is a good opportunity to take a look at the people you are following and adjust based on who has been valuable and who has not been. Whether you agree with me or not on this, I believe that other peoples bias does seep through and affect how most of us might trade otherwise (I know not everyone, it’s just a generalization).  If you have bulls that have recently started to become cautious then the label “bull” is used to define how their outlook has been this year. In actuality, the ones that can shift their perspectives are neither bulls nor bears, but flexible. Having said that, if you have “bears” that have been shorting all year, they likely are perma-bears and you should be wary of how much they influence your trading.

Ok, back to the market. Moving forward, it seems ‘likely’ that we are going to pullback. How much and how fast? Who knows. We could see a swift move down to the 50-day, 1599 (where my current – flexible – target is). We could also chop around a bit before a larger pullback. We could surprise everyone and just gap up to new highs (I really do think that would surprise everyone). And of course, although I don’t think it’s likely, we could pull a Nikkei. The important thing to know is there is more volatility and probably more two-way action, making it a “traders” market. My focus will be to look for potential short set-ups on weaker stocks, while keeping an eye on stocks that hold up fairly well (as those will be the ones to lead us when/if we resume the uptrend).

So here is a look at SPY open interest for next week. The first graph is from Friday morning. The second is after Friday’s trading and what it looks like going into Monday trading.

What sticks out is the 165 puts; however keep in mind that the volume on it (53,905) is fairly light so I don’t see it as “anyone knowing something.” The other thing to take notice of is the majority of them are puts, which helps gauge sentiment.

Current Open Interest

Not much change really. The largest changes were the addition of the 162 and 163 puts, but in my opinion it’s too small to be significant. Given the pullback late Friday, I would have expected to see more puts for next week. Also, I didn’t see any heavy buying that caught my attention.

Enjoy your weekend!

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