Premium Level Open Interest Strategy for Week 5/22/17

Please note that open interest often changes during the week when a stock has a big move. This provides a great starting point, but it would be up to you to continue to track it throughout the week if you are trading one of these names. If it’s an earnings name, the chart will be updated the day after the report comes out. The technical levels should remain fairly consistent. If you did want updates and real time trade alerts then consider becoming a full premium member. Finally, news items trumps open interest.

Open Interest: Because of the uncertainty of where the market closed, it’s tough to say if next week will be one where we buy dips or sell rips. Based on most of the open interest below it suggests a fairly rangebound week so things might just remain sideways where the lows are protected, but not many new highs are made. We are in a good position to be flexible so we will try the best we can to trade around these numbers and/or use some of our other stock setups to create alpha.

SPY-W: (28 of 36 pins – last week failed to the downside). The current Wednesday open interest shows a defined range from 238 to 241 which is more bullish because SPY closed a little above 238. Furthermore, it means SPY is less likely to revisit last weeks lows next week and has room to go back to last weeks highs. In general, this suggests a rangebound market, but in the upper range SPY has been trading in. 

SPY-F: (22 of 31 pins – I count this one as a pin because it fell within range and as I’ve said before, on monthly OPEX the obvious pin has a tendency not to work). This open interest is also more bullish as there is put support that begins at 238 and goes down to 235 and then again at 232 and 230. Given all the puts from 235 to 238, if price fell below 238 and didn’t quickly recover it could lead to some delta hedging and a quick move back to 235 on SPY. To the upside there isn’t much resistance at all except a tiny amount of call resistance at 242.

AAPL: The current open interest shows the best pin at 152, with high calls starting at 150 and the highest being at 155.  The highest puts are at 152 so it’s possible AAPL doesn’t have any large moves next week, but there is currently an easier path lower than higher based on this open interest. In terms of technicals, 155 is resistance and if AAPL can get above there and hold then it might run to all time highs. If AAPL cannot get above 155 then it is more susceptible to losing Friday’s low and heading back down to 150. Should it get there again and break then there is support near 148 and then 145. Also, since AAPL is a key component of the tech sector and the tech sector has been leading the market higher (or at least holding it up) it can end up being an important tell.

AMZN: We bought the dip so well on Wednesday, but unfortunately didn’t stay long enough as it went much higher than where we sold. Although it is currently back near highs, it did put in a fairly ugly candle on Friday (but that could be due to pinning so I wouldn’t read too much into Friday’s late dump yet). The open interest currently has a pretty defined range of 950 to 980. With regard to technicals, from 950 to 970 it’s in fairly bullish hands. Under 950 and it goes back into a neutral range from about 924 to 950. If the market is strong then I think calls can be bought over 970 being mindful that there is call resistance at 980. Between 950 and 970 is no mans land. If price gets back to 950 it can be bought for a trade since there are lots of puts there, but only if the market is not falling apart. If the market is weak then under 950 and AMZN has support at 940, 933, 930, and 924 (924 is also a place to buy calls for a swing or at least a large bounce). Alternatively, if AMZN trades to 980 and the market is not very strong or things begin to stall, AMZN can be shorted (at least for a quick trade) due to all the high calls there. 

BIDU: Despite the sell off on Wednesday, BIDU continued to show relative strength into the end of the week. On the daily chart it definitely looks like it can continue its path higher next week, but it will first have to push through all the 190 calls. If it can get over 190 and especially 192 (and hold over that level) then it is likely headed toward 197 and 200 fairly quickly and is worth getting calls. If it struggles to get and hold over 190/192 then it might be headed to its current best pin area of 185. Anything under that and there is technical support at 183 and 181. I like the potential for this as a long trade over 192 next week.

FB: This is pretty much dead right now and only a trading vehicle for scalps (similar to our quick trade last week) until it sets up a better play. The open interest shows the best pin at 150 and also where there is a lot of resistance. If the market is strong next week and FB can get over 151 then I think it could be worth a long trade with targets at 152.50 and possibly 155. If however, FB continues to trade below 151 then there really isn’t anything to do with it. If the market is very weak then it can again be shorted for a scalp. I would be interested in a swing long at 143.50, which I have mentioned before and have a trigger on for whenever that happens.

GOOGL: I mentioned last week that I wasn’t too keen on chasing this one next week until it had more chance to base. Thus far it has been doing that very well and it could be setting up for a long trade again soon. There is call resistance at both 960 and 970 so unless it is very strong and able to get and hold over that level, it may still need more time. I wouldn’t want to chase GOOGL unless it could get back over 966 (its all time high was 965.90) and the market was strong. In fact, if it got over 960, but failed to make a new high it could be a short as it would likely fall back below those high calls. If GOOGL did get make a new high and kept going then this open interest can easily shift because the volume isn’t too high yet (especially if it happens early in the week). Alternatively, if the market pulls back again then it has technical support at 949, 941, 937 and 934 (that level would be an excellent location to get long). Between 940 and 960 is tough to trade because it is just rangebound.

GS: Last week this was one of the clues as to why I sold longs on Tuesday and bought puts. I had shown that the open interest had tremendous amount of open calls at the 125 level. It got and held over 125 Monday and even rallied a bit on Tuesday, but then toward the end of the day it started to pull back toward the 125 level. Had it really been strong then it would have continued to rally instead of get pulled back by its high calls. That was just one clue that the market wasn’t as bullish as it seemed to be when looking at the high beta momentum stocks. Anyway, next week shows the current best pin around 220, but with less put support than call resistance. It had a double bottom last week, but still did not fill its gap at 212.92. I think if it goes back down to fill that gap then its worth getting long, especially if the best pin is still near 220 and of course the market isn’t falling apart. If the market is weak and SPY drops below last weeks low than this can be headed toward 209 or 206. It would need to get back over 222.20 to have a chance to rally. If it did, then the next level of resistance is 227, but that would be very tough for GS to do unless the market was heading back over 2400. If GS does get back to 222’ish and the market shows any weakness it can be a short as it likely would be closing back under 220 (unless the open interest shifted).

NFLX: Right now its in no mans land trading right back at the 157 level after making a marginal new high and failing. NFLX has been doing that quite often so it’s really hard to trust a breakout in this name right now. The current best pin is 157 and this stock also suggests a rangebound week at the moment. There is put support from 150 to 152 and the main call resistance at 160. NFLX would need to get back over 162 for it to have a chance to rally (but again, it could follow its recent pattern of failing right after making a new high). Under 157 and there is support at 153, 151, 149 and 148.30. If NFLX actually fell toward the 148.30 level it would be a great buying opportunity because it has very good technical support there and the the puts would probably drag it back up. Between the levels of 153 and 162 there isn’t much going on and its more of a scalping vehicle. 

TSLA: Similar to GOOGL this one is currently just basing. The open interest currently shows good put support at 300 and 305 so any pullback near that level is a buying opportunity (at least for a quick trade like we did last week). In terms of technicals, over 316 would target 320, 324 and 328, which is a big breakout level. Under 305 and technical levels of support are 300, 296, 290 and 287.40 (a great buying opportunity if it ever comes). Given all the put support, this probably has more upside than downside next week unless there is bad news on it or the market is falling apart. 

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