If Only Pinning on Apple Maps Worked as Well as Option Pinning

I'm going to save us both time by not rehashing the excitement, or lack of, today's highly anticipated earnings releases. The real excitement came earlier this week with GOOG's bombshell. Although today was an anomaly in that both AAPL and AMZN didn't provide huge movements in the stock once it settled down after hours, what does appear to be fairly consistent is that premium sellers win again. Even when there is a huge pop or drop after an earnings release, somehow it seems that premium sellers have the upper hand by Friday's close. So perhaps now more than ever it would be good to go over the ranges in open interest in our favorite high flyers to get a preview into what will likely guide tomorrow's closing prices (although as of late this market has definitely kept us on our toes so use it as a guide keeping an open mind). Below are open Interest levels for some of our highly followed and traded stocks (most of which reported this week). Over the weekend I will evaluate which stocks did or did not pin within the ranges I am posting below.

Note these are all weekly options that expire Friday 10/26/12. 

Let's start with non other than $AAPL

The range is rather large using highest open interest -  from about 560 to 650. However to cause the most amount of pain to option buyers a pin of around 610 (about where the stock is now after hours) would do the trick.  

 $AMZN

Again using highest OI the range is rather large, being 200 to 250. However, the most pain would occur right around the 230 strike. 

$GOOG 

650 to 700 would be the OI range; however, the best outcome for those premium sellers would be right around 680. 

$CMG

The 240 strike seems to be perfect for $CMG.  

$PCLN

$PCLN, although didn't report, moved more off of $EXPE earnings than $AMZN or $AAPL did on their own earnings. 550 to 570 would be a good range to pin, but the perfect pin would be around 560. 

$FFIV

The highest OI range is from 80 to 105. The most painful strike for option buyers would be near the 92 strike.  

$WYNN

110 to 120 would be the highest OI range. The most painful pin would be at 115. 

There you have it. Let's see how many of these stocks pin at the most painful spot for the option buyers and the most rewarding for the option sellers.  

 Twitter: rrshasss

October Expiration - GOOG, AAPL, PCLN

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October Expiration - Open Interest Ranges 

GOOG, AAPL, PCLN

October expiration is coming and here is a look at three popular high beta stocks that often pin within there open interest range. Monthlies are more popular than weeklies so the numbers are much higher. Keep in mind that many people probably bought these calls and puts a long time ago as opposed to within just a few days as with weekly options.

GOOG OI

GOOG reports earnings this Thursday. The OI call at 800 will be very hard to get over. Currently the asking price for the 800 call strike is $3.10. With the increase in volatility and a possible run up, selling premium at the 800 strike might be a good risk/reward tactic. I will be updating the OI of GOOG via twitter as Thursday gets closer.

Also, GOOG has had a monster run. Below is a chart of the downfall that GOOG had in 2007 after it made such a steep run and an all time high. It doesn't mean GOOG can't continue to go higher and in fact many technical analyst have predicted that GOOG will get to 800 by the end of the year. It's always good to keep yourself open to all different scenarios that could play out. 

 AAPL OI

Although the highest call OI is at 750, close behind it is the 700 strike. The former strike was likely bought up a while ago since monthly options are available far in advance. Since weekly AAPL options are so popular, the OI will likely have drastic changes between now and Friday. AAPL tends to run up into earnings and earnings are set for Thursday October 25th. Having said that, if you follow technical principles or at least follow those who post many updates on AAPL, you will know that AAPL's chart currently needs some work.

I also wanted to point out that if you take a step back and look at the broader picture in relation to AAPL, our current correction is very minor. Also, since March 2009, AAPL has never had more than two down months in a row as shown below.

PCLN OI

Currently 640 is the highest call OI with not much matching it's size on the put side. PCLN has been very choppy as of late as you can see in the daily chart below. After its major drop on earnings in August it began to regain some relative strength; however, the overall market was also in an uptrend . Currently PCLN doesn't appear to have the strength to move up in our overall corrective mode.

Throughout the week I will be posting more charts of open Interest on twitter. Use them to help you determine ranges for a possible pin on Friday. However, remain attentive to the overall market condition as well as earnings announcements that break any presumptions you may have.

Open Interest as a Map for Weekly Trading

Last week I wrote here about taking Thursday's open interest and using it to help you find a range to trade Fridays stock action. The point was to see how well pinning worked using open interest. This week I decided to start a little earlier and begin looking at the range in OI after Monday. Perhaps if you could get a road map of the range a stock will likely trade in a few days before Friday expatriation, you can use that information to help you look for intra-day or intra-week set-ups. Having said that, I would not recommend using Tuesday mornings open interest to make pin predictions for Friday. One more thing I want to note is that I realize this information is all in hindsight and therefore seems less relevant; however, my purpose for right now is just to get some information on how well using open interest to gauge Friday's pin works. Armed with information about the past is after all how technicians developed chart patters.

I again took a few high beta momentum stocks as well as the SPY to assess the potential for finding probable ranges. I will highlight the ranges by showing a chart for OI on Tuesday morning (10/2) and Friday morning (10/5). I will also highlight what each stocks traditional maxpain is (using the iMaxPain application) as well as where the closing price was on both Monday and Friday.

Let's again begin with AAPL

AAPL Tuesday 10/2                                                                    

 

Monday's closing price: 659.39

Tuesday 10/2 Open Interest:

From Monday’s close (Tuesday’s open), the highest call OI was at 680; however there was an almost equivalent number of open calls at 670. The highest OI on the put side was 640. So if I were to keep a range in the back of my mind on Tuesday it would be from 640 to 670. Although that seems large, given the extreme moves AAPL can make in just a day it does seem to provide a little framework (especially when using other technical’s such as moving averages etc.).  The calls and puts crossed at 665.  

AAPL Friday 10/5

 

Friday 10/5 Open Interest:

As you can see the highest OI on the call side was 680, then 675 followed by 670. All three were significantly higher than the highest put side at 660. They crossed closest to the 665 strike. From the steep OI on the call side and knowing AAPL’s history on expiration day, it seemed fairly certain that AAPL only had down to go. And since there was no put strike that truly dominated, there wasn’t much to stop it on the way down.  

Maxpain was 665
AAPL closed at 652.59

GOOG

GOOG Tuesday 10/2

 

Monday's closing price: 761.78

Tuesday 10/2 Open Interest:

If looking at AAPL’s OI it seemed like there was a good chance it could go lower, GOOG’s would leave you to presume that it was going to remain where it was or go higher.  The highest OI on the call side was 760, but it was substantially lower than the highest put OI at 750. If I were to imagine a range based on OI, I would have made it 750 to beyond as there wasn’t anything substantial on the call side preventing it from going higher. The calls and puts crossed at 760. 

GOOG Friday 10/5

Friday 10/5 Open Interest:

Throughout the week the call side built up and the highest OI was at 770. The highest put side remained at 750; however a considerable amount of puts also built up at 760. The calls and puts crossed at 765.   

Maxpain was 760
GOOG closed at 767.65

PCLN 

PCLN Tuesday 10/2

 

Monday's closing price: 631.18

Tuesday 10/2 Open Interest:

The highest OI on the call side is 625. The highest OI on the put side is 615.  The call and puts cross at the 620 strike. From the chart of PCLN the range would appear to be between 615 and 625; however knowing PCLN is subject to fairly volatile moves and the highest OI for either side is less than 1000 it would definitely have been risky using such a narrow range this early into the week. 

PCLN Friday 10/5

Friday 10/5 Open Interest:

The highest call OI had not only grown substantially, but moved to 640. The highest put OI, which represented only about a third of the call side was at 620. Just based on OI Friday morning it seemed that PCLN would not get over 640 and would likely drift down to either where they crossed between 630 and 635 or lower since there wasn't a substantial put OI that had built up.

Maxpain was 625 

PCLN closed at 631.89

What was interesting about PCLN is that there was a fair amount of bullish sentiment on twitter Thursday evening and Friday morning and it did in fact reach a high of 643.88 early in that morning. With this OI information you may have had pretty good probability short.

CMG

I decided to throw CMG in because I thought it would be interesting to demonstrate how events, earnings, or news can throw pinning out the window. On Tuesday (after OI had a couple days to begin to develop a range), hedge-fund manager David Einhorn threw CMG under the bus by saying it would be wise to short.

CMG Tuesday 10/2

Monday's closing price: 316.13

Tuesday 10/2 Open Interest:  

The highest call OI was 320. The highest put OI was at 300 and was substantially higher than the call side (maybe someone could read Einhorn's mind or something like that...). Based on the OI on the close Monday it would have seemed that CMG would have had room to trend higher.

CMG Friday 10/5

Friday 10/5 Open Interest:

The highest call OI had grown substantially and was at 305. The highest put OI had also grown, but remained at 300, with an almost equally high amount at 290. They crossed close to the 305 strike. Based on the OI information it would have seemed that CMG would not have closed under 300. However, this is a good lesson regarding events, news etc. They change the dynamic and you need to be prepared for anything and everything. 

SPY 

SPY Tuesday 10/2 

Monday's closing price: 144.35

Tuesday 10/2 Open Interest: 

The highest call OI was at 144, which was not even half of the highest put OI at 140. As of Monday's close it would have seemed like the SPY had room to move in both directions, but would likely not get below 140.  

SPY Friday 10/5 

 

Friday 10/5 Open Interest: 

The highest call OI was at 147, closely followed by 146. The highest put OI remained at 140, but the second high at 145 had also built up considerably.  They crossed between 145.50 and 146.

Maxpain was 145.50

SPY closed at 146.14

Having looked over the data it does appear that each stock stayed fairly close within it's general range using the OI from Monday with the exception of CMG. As I mentioned in a previous blog, I intend to continue to track OI and start to look for ways to find set-ups during the week.

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Will AAPL, GOOG & SPY Pin This Week?

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The Open Interest
AAPL, GOOG, & SPY

Over the weekend I wrote a post here about weekly option expiration and pinning using open interest. Here are three different charts to look at for this weeks weekly expiration. I chose high flyers AAPL and GOOG due to their popularity and SPY to see if it can help us gauge the range we will close in this Friday (10/5). Be prudent as we still have a day for this open interest to change.

AAPL

GOOG

  

SPY

 

 

Where The Pin Drops - Open Interest & Weekly Expiration

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Where the Drops

Open Interest & Weekly Expiration

The increase in weekly options has caught the attention of many investors as a potentially quick way to money without the larger premiums coupled with monthly options. Many people are already familiar with and use maxpain as a way to gauge what the price of a stock may be at the close on Friday. Knowing there is a probable chance that a stock will “pin” at certain price can help with your trading plan. One of the more popular methods is to write put and/or call options a little bit outside of the money of the likely pin strike price (perhaps even at the money strikes for those that are more risk tolerant) in order to take advantage of time decay.

Anytime a trader uses the word “likely,”  “probably” or “should” etc., there is an inherent risk involved. To assume that your stock will pin at a so-called price carries that risk. In order to try to increase your chances of correctly identifying the stock price at the end of the day Friday, it may be a good idea to look at each stocks open interest (OI). By doing so, it may be easier to find a range instead of one number. Lets look back to last week (9/28/12) at some large cap momentum stocks as well as some less popular liquid stocks to see how you would have fared using OI to determine a range versus using maxpain (note: all maxpain numbers come from the iMaxPain application).


Let’s of course begin with AAPL

AAPL’s range based on its highest OI was 665 – 700. However, we can narrow that down a bit more to 665 – 690 by using the 2nd highest OI on the call side, which likely stands in the way of the price getting over it by expiration. On this graph the put and call OI meet on all points from 675 to 685.
·       Maxpain was 680
·       AAPL closed at 667.10

In this example knowing the OI range was more helpful than knowing the maxpain.


AMZN

AMZN’s range based on its highest OI was 250 – 260. The put and call OI met at 255.
·       Maxpain was 255
·       AMZN closed at 254.32

In AMZN’s case, both maxpain and using its OI would have worked well.


GOOG

GOOG’s range based on its highest OI was from 740 – 770. Narrowing that down to a smaller range using at least 3,500 OI would take the range to 750 – 760. On this graph the put and call OI meet at 755.
·       Maxpain was 750
·       GOOG closed at 754.50

In this example knowing the OI range as well as where the puts and calls crossed paths was more helpful than knowing the maxpain.


PCLN

PCLN’s range based on its highest OI was from 620 – 640. Narrowing that down further to PCLN’s 2nd highest OI the range becomes 625 – 635.  The put and call OI meet at 630.
·       Maxpain was 630
·       PCLN closed at 619.07

In this example neither using the OI range or maxpain would have been effective. However, had you used the 620 to sell puts and received at least $0.93 premium you likely would have at least broken even or yielded some income.

Given that the GLD is an ETF and that it attracts a wider base of traders, I thought it would be interesting to evaluate.

 


The GLD’s range based on highest IO is from 166 - 170; however, the 166 put doesn’t even come close to the huge OI at the 170 call strike. The two overlap at both 169.5 and at 170 where the calls tower over the puts.
·       Maxpain was 169
·       GLD closed at 171.89

Neither using OI nor maxpain would have rendered well. The enormous OI on the call side would have erroneously led to the belief that the GLD would close at or below 170 and yet enough buyers stepped in Friday to keep this ETF afloat.


Trying to forecast the expiration price of a stock using any method gets thrown out the window with events such as earnings. Nevertheless, I thought it would be interesting to look at such a stock this past week. NKE reported Thursday after the bell. Although anticipation of the earnings likely affected the OI for the week, earnings themselves could not have because OI for Thursday’s close was the last available OI for the week.

NKE’s range based on its highest OI was from 90 – 100. However, given that the put side was very low in comparison to the call side, it would have made more sense to use the overlap strike of the puts and calls, which was at 95. Furthermore, it would have been prudent to keep an eye on that 100 call OI since it was so enormous.
·       Maxpain was 97.50
·       NKE closed at 94.91

Despite earnings, NKE would still have been a good candidate to play by selling out of the money puts or calls using the 95 strike where they overlapped. Even if that seemed too risky, selling 100 strike calls, (which obviously a lot of people or institutions did), was a good choice given the high volatility in anticipation of earnings.

MA

MA’s range based on its highest OI was from 445 – 455. The puts and calls overlapped at 450.
·       Maxpain was 450
·       MA closed at 451.48
Assuming you could have taken in enough premium, either using OI or maxpain would have worked; however had you sold 450 MA call strikes you would have had to keep an eye on them and close them intraday when MA was close to 450. The safer play would definitely have been using the OI range.

JPM

JPM’s range based on its highest OI was from 40 – 42. Narrowing the range to the highest put OI and 2nd highest call OI is 40 – 41. They cross between 40.5 and 41.
·       Maxpain was 41
·       JPM closed at 40.48
In this case using the highest put OI and the 2nd highest call OI would have been ideal.


And finally, I thought it would be interesting to look at the SPY.

The range based on SPY’s highest OI was from 141 – 149.5. Given several high OI strikes, the range could have been narrowed to either 142.5 – 147 or possibly even narrower to 144 – 145.5.
·       Maxpain was 145
·       SPY closed at 143.97.

With regard to the SPY, using the 2nd range would have been ideal; however, even using the narrowest range would have worked because SPY closed $.03 shy of falling within the range of 144 – 145.5.

Thus far, it appears that using a stocks OI put and call range to create option plays could be very useful. I will look to continue to track several stocks and perhaps develop some strategies overtime to go with them.

Twitter: rrshasss

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