Option Analysis Setups: $SPY & $QQQ look set to rally
But...we don't expect this rally to last long
Weekly Recap:
● A weak close but lots of puts from 370+ closing
● This closing of puts 370+ leaves room for a post op-ex rally
● Max call OI is at 400, so we think at best this is the top STR hit for the rally
● Regardless, rallies are just opportunities to sell
Market Abstract:
Last week we flushed out the largest quarterly op-ex of the year, clearing $3.2T of options in a week. The majority of those options are puts, so this should temporarily lift some pressure on the market. We do not expect that upside relief to last long and will look to sell on rallies.
From a flow perspective, the largest strike by call OI is 400, then the 380 STR with about 300K contracts at 400, 190 at 380 and 180 at 390.
Hence rallies may only make it to 390 as there isn’t much beyond that till the 400 STR, so prices could stall at 390, but if they make it past it, things could get fluid.
Overall, we saw a net reduction in puts by 3.5M and only a 600K decrease on the call side, hence why we think short term there is less downside pressure to start the week. And with the EU/Asia markets having a green Monday, we expect a decent lift on Tuesday and perhaps Wednesday.