Open Interest & Set-ups for 7/11/16 – Sample

This was originally published form subscribers on 7/9/16

The premise for last week was that we had to be patient and pick our spots carefully and not expect huge gains even though I was bullish. Most of the week was choppy and as I had said hard to make money with options. Friday was obviously a different story and even surpassed the 212 high calls that were on the open interest. Now that we finally broke to the upside the only thing left to contend with is all time highs – and it’s definitely something that has been a source of big contention. Next week is monthly OPEX which means there will likely be less shifting of the open interest.

Breadth: There isn’t much to say at this point. For now overall breadth remains healthy and we are not overbought or oversold. If we push to all new highs we want to see breadth continue to expand, something the market didn’t do as it was grinding higher last year.

SPX stocks above their 200-day MA: this is not a short term indicator by an means, but overall as price goes higher we want to see this broaden. 

Nasdaq stocks even participated: 93% of QQQ stocks got above their 5-day MA. That might be short term overbought, but over the last 5 years, there has been at least one higher high 90% of the time sometime over the next five trading days and 100% of the time over the next 20 days. Thus, this is very likely bullish and not a blow off. 

SPX technical levels:

SPX above 2128: All time highs of 2134.28. That’s it.

SPX below 2128: 2120, 2113, 2108, 2098. Obviously there are lots more, but for now only going to show the near term ones because at this point I’m not expecting a large pullback.

Open Interest:

SPY: The main high strikes are 205 and 215. Thus for now any upside we see next week is likely to hit pretty big resistance at 215 and if it gets over 215, it may pullback before the close on Friday. Last week SPY was strong enough to get over 212 and if intra-day breadth is extremely strong like it was on Friday, then it’s definitely not something we fight. I will monitor it for changes during the week. 

AAPL: There isn’t much take away from the open interest and I don’t have much interest in this stock that continues to stay range bound. Perhaps after earnings. 

AMZN: PrimeDay is Tuesday and it might continue to run into them. What happens after I’m not sure, but I would welcome a pullback to get long. Since I don’t know where it will close Monday or Tuesday or even if it will pullback after PrimeDay I don’t know yet what potential pullback spots might be worth getting long at. I might consider getting long at the start of the week on a pullback (if one even comes), but it will depend on premiums and what else might be in play. For now I will ignore the open interest because next week has an event, but will absolutely monitor it after prime day and into the end of the week. 

BIDU: As I said last week it is still in a downtrend. It recovered well from Friday’s drop, but it still has a lot to prove. The only thing we can really take away from the open interest is a drop below 150 is a short term buy because of all the put support. On a technical basis it still has a couple gaps below it that likely will get filled this summer unless the stock can really start to improve and get back over 175. Any rally near 170 would have me interested in getting short. 

FB: Guess seeing all those puts last week was indeed a good long signal. FB has been basing for a very long time so I do think there is more upside next week possibly up to 120 where all those calls are. There might be some resistance near 119 though, which is my first target. Any pullback to 116 should hold and also be a place to get long if not already. 

GOOGL: At this point it has free air all the way to 750 with regard to the open interest. There is technical resistance at 721, 728, 736, 743 and then 753. I think it could get to 743 or 750 next week if we get to all time highs in the market and momentum continues. Plus it has that inverse head and shoulders as I showed last week over twitter. Support below Friday’s close comes in at 713 and 708.

GS: It finally managed to rally last week (that dip under the 143 puts would have been an awesome buy – I know some of you took that). With TLT ripping I don’t know how much upside financials can really have; plus you can see there are lots of calls stacked up starting at 155. For now the best pin is 150 but I do think it can probably get to 155 before real resistance kicks in. Any dip to 147 or even better 145 and I would look into calls if the market is just consolidating. 

NFLX: This is the stock that always gets more lives. This has calls lined up at 100 (also the best pin), but as I always say, NFLX can and often does get over its high calls. If it can get above Friday’s high (97.41) I think 100 would be a target and possibly 103. If it fails to get or stay above Friday’s high It might head back to the 95 or 93 area. Because earnings are coming shortly I wouldn’t expect it to sell off much.

TSLA: It failed to close at the down sloping 200-day MA. For now it’s still in a downtrend, but with all those puts at at 225 and the best pin being 230 then it might get some traction next week. However unless the open interest changes it may not get much above 230. A close around 230 on the week would be a more bullish development looking out longer term. Given the open interest, any consolidation early in the week or pullback and I might look for calls. Alternatively, if price gets too much over 230 I would look into puts for the end of the week.

Set-ups: At this point the market is in a good position which means lots of opportunities are coming. With many opportunities it’s easy to end up with too many positions which inevitably leads to rug pulls that hurt short term option traders. I’m sure we have all been there before. Thus, this is a friendly reminder (for me as well as you guys) that we want to limit the amount of trades we take when everything looks good and also why I am limiting the amount of set-ups below. Also, I am going to look into potential ETF trades next week. Finally, please feel free to help remind me of this during the week. If you remind me, I can remind our group and we can all be more successful.

CRM: Looks ripe and has room to 85 in the open interest, although it may struggle at 82 and might be better to go out an extra week. 

PYPL: It has room to 40 if it can get continuation. 

CELG: I would like to get this on a pullback if possible next week. Currently best pin is 105, but 1) it’s not prominent and 2) not really sure how much this would pin. I think because it’s a monthly it would struggle if it got to high calls, but not necessarily pin. I don’t have an exact location of where I would be interested in getting long, but wanted to keep it on watch.