SPY option analysis: week of 20170102

Happy New Year.

We have shorter trade week and some of traders look like they are still sitting on couch eating left over of buche de noel. That said, we are going to have quiet start and the market would pick up from mid of this week.

Now here are charts from Option M8 App:

$SPY OI 0104

From SPY's OI chart for Wednesday, I can see:

• Price based Open Interests(3rd row) are relatively small
• 224P is net long and ATM (at the money)
• 226P is net short and ITM (in the money)
• 227C is net long but OTM (out of the money)

Let's see both 224P and 226P in daily as well as 60min.

SPY 0104 224P

Above is chart of SPY and SPY 0104 224P. Most of 224P was traded on past few dates, and current price is above VWAP, which means "Average 224P long holders are slightly in profit". We can expect dips are buy because those 224P long holders need to take profit which involves Put selling, which is bullish.

SPY 0104 227P

On the SPY 0104 227P chart, we can see current price is above VWAP, so those 227P short holders need to start hedging delta, which is bearish.

I would say SPY would close between 224 and 227 on this Wednesday expiration.

SPY 0106 OI

Things could get changed after Wednesday expiration. 220C is net long and deeply ITM while 224C is net short and ATM.

SPY 0106 224C

Those 224C are belowVWAP that means "average" short holders are in profit. Unless SPY goes up 225 level and above quickly, those short holders would stay so that those calls go worthless.

SPY 0106 220C

"Average" 220C long holders are in red because current price is below VWAP. Those long holders would close their positions as 220C approaches VWAP. This is not a bullish situation.

Conclusion: SPY would stay narrow range by Wednesday expiration with light volume. Dips could be bought, though. After Wednesday expiration, volume would get picked up, but the price would be heavy.

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