I have received several e-mails on my take for opex in March. I am glad to see that some of you are starting to pay attention to option open interest. It is a vital tool, but for now, it is not quite in play yet, in fact it is almost non-contrarian. But as we head closer to option expiration week, third Friday of each month, it becomes very relevant and contrarian for the most part. In other words, more puts than calls provide support and more calls than puts provide resistance, as option sellers manipulate the markets in order to have as many options expire worthless as possible. Welcome to the big leagues.
Looking at QQQQ March contract, the 42 strike has a .75 ratio, 180K puts to 245K calls. This can change of course, but usually the trend is set early on. This means QQQQ could face resistance at that level in mid-March. The 41 strike has a 1.05 pc ratio, 279K puts to 265K calls, so more puts there and some support. Note that the total open interest is the highest at 41, sometimes referred to as "Max Pain". They will try their best to close that week in March as near to 41 as they can. Looking further below, we see that the 40 strike has a 5.35 pc ratio, hugely supportive for the markets. You must understand that all this is for the most part hedging, but the calls are very often speculative and tells you a lot about the market mood. The take so far is that we have resistance at 42, 43 and strong support at 40. It will be a range to play with as we enter the month of March.
I will not post until next weekend as I am taking a long needed vacation. Pay particular attention to SPX 1286 support nearby (June 2001 high) and below that, SOX 511, an absolute line in the sand for techs. As I commented last weekend, I think oil is headed for the low 50's, but watch 63/64, should it rally.
Be safe and remember to take profits, keep tight stops and never let your bias get in the way.
Looking at QQQQ March contract, the 42 strike has a .75 ratio, 180K puts to 245K calls. This can change of course, but usually the trend is set early on. This means QQQQ could face resistance at that level in mid-March. The 41 strike has a 1.05 pc ratio, 279K puts to 265K calls, so more puts there and some support. Note that the total open interest is the highest at 41, sometimes referred to as "Max Pain". They will try their best to close that week in March as near to 41 as they can. Looking further below, we see that the 40 strike has a 5.35 pc ratio, hugely supportive for the markets. You must understand that all this is for the most part hedging, but the calls are very often speculative and tells you a lot about the market mood. The take so far is that we have resistance at 42, 43 and strong support at 40. It will be a range to play with as we enter the month of March.
I will not post until next weekend as I am taking a long needed vacation. Pay particular attention to SPX 1286 support nearby (June 2001 high) and below that, SOX 511, an absolute line in the sand for techs. As I commented last weekend, I think oil is headed for the low 50's, but watch 63/64, should it rally.
Be safe and remember to take profits, keep tight stops and never let your bias get in the way.
This entry was posted
on Thursday, February 23, 2006 at 5:30 PM.
