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.

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.

You can download OptionM8 app from Google App Store or iTunes App Store.

Morning preview 2016/12/22

This is the review for the second half of this week. Yes, we hate Wednesday expirations!

From this OI chart, I would say most of the big positions were closed, therefore we should expect quiet expiration this Friday. The only exception would be SPY 225C which is net long.

The daily chart of 225C shows the current price is just above VWAP, so we can expect profit taking above this area. The consolidation continues, I guess.

Shameless advertisements:
Those charts are from OptionM8 app. You can download it free from Google Play Store or Apple iTunes.

Is the market at the top?

The market has been ripping after Hillary lost her ego.

But there is a sign of the top. I am paying attention to the ratio of S&P500($SPX) to UST30Y price ($USB). Let's take a look at the weekly chart.

$USB:$SPX Weekly

The ratio is currently 0.066. Those horizontal lines are standard deviations and the green is 1σ and the pink is 2σ, respectively. You can see how the current ratio, 0.066, is unusual level. I also examined the $USB:$SPX ratio by downloading them from StockCharts.com and found that there were only 25weeks that this ratio was less than 0.066.  Those weeks are as follows:

• 1999/11/15
• 1999/11/22
• 1999/11/29
• 1999/12/06
• 1999/12/13
• 1999/12/20
• 1999/12/27
• 2000/01/03
• 2000/01/10
• 2000/01/18
• 2000/01/31
• 2000/03/13
• 2000/03/20
• 2000/03/27
• 2000/04/03
• 2000/04/24
• 2000/05/01
• 2000/05/08
• 2000/05/15
• 2000/05/30
• 2000/06/19
• 2000/07/03
• 2000/07/10
• 2000/08/28
• 2016/12/12

You can see almost all of them happened between 1999 and 2000 when Pets.com were listed on NASDAQ.

Anyways, it's only 25weeks out of 2034 weeks that $USB:$SPX was less than current level. If this ratio reverts to the mean, and I believe so, there would be at least two scenarios.

A: Stocks are sold and bonds are bought.
B: Stocks keep getting bought and bonds are bought as well.

The scenario A is called pullback or collection, depending the deepness of the sell-off. I believe many of market participants are expecting this course.

The second scenario is called.... I don't know, but I've seen this picture before when I lived in Japan back in late 80's. I remember everything was bought....stocks, JGB, and Yen.

This is monthly chart of Nikkei back in 1980's. You will see that how the market could stay overbought by those over 70 RSIs.

I'm not saying this happens in US following years, but I would like to say "don't underestimate the power of excess liquidity".

Morning preview 2016/12/19

Good morning.

On SPY's Value Based Open Interest chart, I would like to point out two positions, 221 C (Long) and 230 P (Short).

Let's see the 221C on Daily Chart. Most of the Longs are bought on December 8th, and that buyers were still in profit last Friday, but the margin is narrowing. We could expect this Call holder would close the position by Wednesday.

On the other hand, 230P was sold to open on December 14th, the Put price has not decreased so much. If SPY price can not rise, the seller might start closing this position.

Overall SPY seems to be heavy until Wednesday.

OptionM 8 new version

OptionM8 new version

We released a new version of OptionM8. 

• Android version
• IOS version 

In this version, we made it possible to display value-based OI. We also made it possible to display VWAP (volume load moving average) on option price chart(daily, 60 minutes, 5 minutes and 1 minute). These functions are unique to OptionM8.

Based on the value-based OI, you can estimate whether a certain strike is Net Long or Net Short, and how much their positions are.

Also, by looking at the VWAP of the daily options chart, you can see how much profits/loss are on the long side or short side.

If a net-short strike enters ITM, those sellers would be in red and they are likely to buy back those  options. In other words, the probability of option price rise increases.

Tap Open Interest from the lower screen menu
Select Ticker and Expiry from the top right menu 
→ Open Interest charts are displayed 

The Value-based OI is in the 3rd row.
Calls are green and Puts are red.
You can see 221.5 Call and 222 Call are net short

Select Daily Chart from the bottom menu
Then select Ticker, Expiry, Call/Put, and Strike Price from the top-right menu
→ The Daily charts are displayed

The second row is the Call's daily chart
The red line is Bid-based VWAP and the red line is Ask-based VWAP
As you can see, Calls are way above the VWAP and shorts are in loss,
therefore you could expect those calls are "buy" in the intraday dip.

Conversely if the net long Strike is in OTM and those longs are in red, they have a high probability of "sell the blip" somewhere near VWAP. If it is Call, that strike price would be a strong resistance of stock price, and if it is Put, that strike price would work as strong support of stock price.

Select OI from the bottom menu then select Ticker and Expiry
from the upper menu of the screen to display OI charts

The 3rd row is the value-based OI chart.
You can see that 219 Put is significantly long.

Let's see how the 210 Put is working...

As you can see, that 219 Put is below VWAP and longs are in loss.
If SPY drops to 219 level, you could expect strong "buy" opportunity.

The pricing OptionM8 is as follows:

• Guest users can display OI charts, daily charts, and intraday charts for SPY only one expiration and one strike. Guest users would see advertisements.
• Guest users can upgrade to Free tier by logging in though Twitter. Free tier users can display OI charts, daily charts, and intraday charts for SPY, QQQ, and IWM with next two expirations and three strikes. Advertisements would be displayed.
• Free tier users can upgrade to Basic tier by subscription. The price is $49.99/month. Basic users can display those charts with more expirations and strikes.

2016/06/27 SPY Options Wrap Up

Outlook

The market is digesting the impact of BRexit. In Japan, some critics are saying BRexit is much worse than 2007 financial crisis. I think BRexit is not that bad, but cheaper £ definitely gives US companies less sales from UK region.

At this moment, nobody knows how big BRexit's impact is, therefore we should ask to the market that can magically guess anything.

Right now, S&P500 is oversold in short term so we can expect some rebound here, however, under this uncertain situation, we can't expect enough buyers show up therefore "Sell the blip" would be the right tactics, and SPY 203 level would lure those sellers.

SPY today

SPY 5m

SPY gapped down again and it showed beautiful positive divergence and suggests short term bottoming. The problem is similar positive divergence was observed last Friday. 

SPY 1h

Above is SPY 1hour chart and it shows us how steep this decline was. Those indicators such as RSI or PPO suggest very short term bottoms is in. The upper side of Raff Channel is coincidentally same level as 0.382 fib and it's reasonable target for near term rebound. If SPY can't get buyers at this level, 203, sellers will show up.

$NYAD

$NYHL

SPY:RSP

$SPX CVI

$SPX STVO

$SPX VTO

CVI is -2σ and suggests near term rebound. 

SPY OI 06/30

SPY OI 07/01

SPY OI 07/08

SPY DWV 06/30

SPY DWV 07/01

SPY DWV 07/08

There are two expirations this week and 06/30 had lots of Put selling today while 07/01 had Put buying. There are still ITM puts for 06/30 and we can expect delta hedge selling if SPY can't recover 205 level by Wednesday.

Extra: S&P500 components

Long watch list...DPS

DPS

Short watch list...SPLS and ZION

SPLS

ZION