The collision of global markets and social mood

Friday, January 17, 2014

Option Expiration

One says higher, one says lower. Maybe we can get both.

Open interest for today's option expiration suggests that most options would expire worthless below 1830 on the S&P cash, possibly 181 on SPY by the end of the day. SPX index futures options expire in the morning and look like they're heading out at to close near 1840 (futures) where OI suggests they want to be.

SPY options expire at the close, so that's why -- for today at least -- the options market suggests lower. That's where large options writers, mostly insiders, will make the most money from options expiring worthless. It's an enormous incentive to them to do whatever they can to slam the futures around to lead the market where they want.

The market's pattern, however, suggests new all-time highs soon if not today. So it will be interesting to see the battle ensue. Indeed, it may have already taken place. Notice the hard one-day flush to the SPY 181 earlier in the week. That may have been it right there.

For my part, I'd like to buy calls and more SSO around 1830. If it happens it happens.

Here's a chart that I really like from my friend Andrewunknown on Stocktwits (who seems to appreciate anonymity too). Now that the 1929 analog seems to have failed (or is in the process of being pushed back) this chart illustrates the very real possibility that we're in a rare blow-off top.

At this time, I only have two Fibonacci extension targets in the 1900 area. That's not to say there aren't more. With such a choppy advance, it's a challenge to know where to draw them from.

Key word here is choppy. Choppy usually gets entirely taken back. Quickly. Timing uncertain.

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