What happened on last Friday?

The last Friday, $QQQ jumped beefy 2.91% and led the market. There was no doubt that the earnings from $AMZN and $GOOG fueled the NASDAQ composite index.

In this article, I would like to leave some comments from option market perspective. First, let's see the Open Interest chart from our #optionM8 app.

QQQ OI 171103

As you can see, there are HUGE SHORT positions at 150C.

If you check the 5min chart of QQQ 171103 150C, you will find that someone sold 34000 of 150C at $1.24 between 10:45 and 10:50 on this day. That is $4.2M of bet for QQQ closing below 150 on next Friday.

Coincidentally, QQQ started surging immediately after this 150C was sold to open. One can argue that this call seller was forced to buy cash QQQ for delta hedging. If this were the case, we could ignore this 150C open interest, however, if this seller has big balls, QQQ would pull back to 150 or less by next Friday so that the 150C seller could pocket $4.2M of premium.

Remember. Selling CALLs is highly risky business, unless it's hedged, or, ... the seller would know something we don't know. I won't get surprised if I see QQQ would pull back to 150 level by next Friday.

There was one more interesting thing on last Friday. RSP, equal weighted version of SPY, ended flat and negative on weekly chart.

RSP Daily

RSP Weekly

What do those chart mean? They mean less stocks are pushing up SPY. The momentum is definitely weakening.

The next chart is SPY:RSP ratio. I added B-Band to see how the last Friday was unusual.

SPY:RSP Ratio daily

This ratio has strong mean reversion and usually ends up inside of B-Band, however, this ratio rallied on Friday and ended up ABOVE the B-Band. I scanned past five years of data but I couldn't find similar case.

If we can expect mean reversion for SPY:RSP, we would see QQQ's pullback this Monday or Tuesday. Since much of SPY's advance last Friday was accounted by QQQ, we could expect SPY's pullback as well.

SPY OI 1101

SPY OI 1103

For the OI Wednesday, it's pretty much biased to PUT long side. It usually works as support, since those long put holders would close their position before expiration. (When many puts were sold, the stock price tends to rise.)

The problem is in 1103 OI. There are HUGE 257C LONGs as well 257P SHORTs. Those 257C longs would start closing their position once SPY starts pull back. When many calls are sold, the stock price tends to decline.

SPY 1103 257P 5min

Then I would like to point out that somebody SOLD 10000 of 1103 257P at $0.73 last Friday between 12:00 and 12:05. SPY 1103 257P closed 0.67 last Friday and it's OTM for now.

If SPY breakdown 257 and SPY 1103 257P moves above $0.73, which is not so far away, the seller of 257P would start selling cash SPY or buying back 257P, ether of those options creates down pressure on SPY.

The good news is that there are lots of 256P Longs floating and they would close their position once there 256P rises back above VWAP. We would find relatively strong support between 255 and 256 next week.

Happy Trading.

$SPY Breakout imminent?

Forget about the North Korea's nuke. Yes, we could see the end of the world this month, but the market could be ready to breakout.

Let's see the Open Interest chart from our OptionM8 app. Below is SPY 0908 OI.

OI SPY 0908 from OptionM8 App

As you can see, there are three big short call positions, 244, 245, and 247, respectively. Let's see each of daily chart.

SPY and SPY 0908 244C, Daily

Most of those 244 Calls were sold on August 8th ($5.7 x 10000) and August 9th ($4.5 level x 7000). Currently 244C is $4, so those sellers are still in profit. For the record, sellers' VWAP is $5.14 as of September 1st.

SPY and SPY 0908 245C, Daily

SPY 245C had several selling between August 3rd and August 9th. Current VWAP for sellers is $3.95.

SPY and SPY 0908 247C, Daily

SPY 247C had also bulk selling in early August. Current VWAP for sellers is $2.29.

I would say those call sellers thought the market topped in early August. Well, they may be right, or not. The point is their positions are now in the money, and the premium they pocketed is eaten up by recent spike of SPY.

If (BIG IF), the market can bring up SPY $1 more, those sellers would start to hedge there positions. The problem is there are not so many SPY longs floating around. If it happens, we would see very sharp short squeeze.

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SPY Option Market Analysis 20170111

Wrap up for today

Yesterday I wrote

Most of those 226P was bought today at 0.2 level, ant VWAP is around 0.4.  Those 226P holders may hold the position even after the price exceeds VWAP, because puts are too cheap now. Do you set stop-sell for lottery ticket? I don't.

SPY 0111 226P 5min

Indeed, SPY was sold as Trump talked at conference, and the VWAP 0.40 worked as resistance, and I thought the third attempt would break the VWAP. I was wrong.

SPY 0111 226P 5min after Trump

The breakout was fake and I lost my bet. I should have stayed at my discipline. Don't be too greedy.

Tomorrow and beyond

SPY 0113 OI

The price based OI (3rd row) for Friday looks slightly bullish. 228.5C would become as resistant level.

SPY Option Market Analysis 20170110

Wrap up

OptionM8 app is not a price prediction tool, but user can predict a price reaction from the option market itself. We had a typical example in SPY options today.

SPY OI 20170111

Yesterday, SPY closed at 226.46. You can see 227C was net long from the 3rd row of the charts. SPY popped up this morning and 227C went to ITM.

SPY 20170111 227C Daily

From the daily chart, 227C closed below VWAP 0.60 level yesterday, which means average long holders were under water, therefore, it would be rational to expect those long holders would close the position at VWAP level, 0.60.

SPY 20170111 227C 5min

The intraday chart shows 227C reversed at 0.60 level.

SPY 29179111 227P 5min

Of course 227P had a good swing trade opportunity today.

You can see this trading strategy on our short introduction video.

Trade ideas for tomorrow

SPY OI 20170111

SPY didn't change much today, but OI did. Actually 226P was bought relatively big today.

SPY 29170111 226P

Most of those 226P was bought today at 0.2 level, ant VWAP is around 0.4.  Those 226P holders may hold the position even after the price exceeds VWAP, because puts are too cheap now. Do you set stop-sell for lottery ticket? I don't.

I'm slightly bearish here.

SPY Option Analysis 20170109

SPY option analysis: week of 20170109

Last week, I wrote a bearish tone of article but obviously I was wrong. The turning point was Wednesday when 0106 SPY 227C started getting squeezed. I usually follow those big option traders but they are not always correct, and once their bets go wrong, the market moves quickly because they need to wind up their big positions.

SPY OI Wednesday

The market would be quiet by Wednesday as price base OIs are small. If there are any battle between bears and bulls, then SPY 227 is a good level as both of call and put are net long at this price, but positions are small so don't expect a big battle.

SPY OI Friday

Friday expirations are slightly bigger than Wednesday, but again those are small and I can't say anything at this moment.  The earning season starts Monday kicked of by AA, but we need to wait for a week to many earning reports kick in, then Trump will officially start his job in the Whitehouse. Do we see another "Buy the rumor Sell the news" thing?

I would stay away from the market this week. Happy Trading.

Shameless Advertisement: Above charts were created by our OptionM8 app. You can download it free from Google Play or iTunes store.