Another option expiration week is upon us – which only means one thing usually…more volatility! While I’m hoping for another down week, we must prepare for everything in between. Right now the futures are pointing much lower.
Last night I took a look the the Open Interest for the SPY, DIA, and QQQQ August Options. I’ve never really talked about this on the blog that much, but these are important things to take a look at as they can give clues to where the money is (or isn’t).
Open interest is the number of contracts which remain open in for the certain strike price and month. These are generally people who still think they can make money in the next 5 days with there options. Having said that, we all know that 85% of all options expire worthless and that you should generally trade OPPOSITE of the crowd or herd.
So, the QQQQ has A LOT of open interest near the 37 & 38 Put and Call range. Therefore, the worst case scenario (i.e. the one that would expire most of these options worthless) would be for the QQQQ to pull back from 39-ish down to around 37 or 38. This would clearly be the worst case scenario and therefore the MOVE we should be expecting by the end of the week. For the DIA the range is around 92 and for the SPY it’s around 98.
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