There is a lot going on today but one question I always get asked is what pinning a strike really means. These are the types of questions I love to get! Some people look at my projections for the market and think I am psychic, or a fortune teller and for the people benefiting from my services, they think I’m a wizard!
Really it gets broken down to a simpler explanation. It’s all about the technical trading baby!
Today we were going over QQQ and I pointed out way back in December, there started to be large clusters of put open interest contracts.
Now this is when the market started to roll over. Something weird started happening shortly after in January.
Open interest typically starts to build up 10-15% out of the money. We start to see these Points of interest showing up on both the call and put sides. In this case we would have expected to see open interest start building up around $360 on QQQ but that isnt reality when we looked at it. We were seeing spikes of open interest at $290 and $300 strikes for the June expiration.
This open interest configuration is one that I had never seen in my 20+ years of trading the market.
Open interest (unlike volatility that resets each day to zero) builds over time. As we move along throughout the year we start to see the open interest start to slide down the hill a bit.
February hits we were starting to see open interest fall to the$275-$250 and even as low as $200 strikes.
Think about this, the put open interest really started to stand out when we get down below the $280 strike prices. There was nearly no open call interest past that point. I even announced that it was looking like a $275 pin…
Boom that’s where we found the support.
Now I’m going to arm you with exactly what you need to make this magic happen.
You can do it on any ETF or individual company all you need to do it use the information right in front of you.
Any call strike that is standing out and above the current levels. If you are not above the current levels that means the stock has already made its run. We should be playing this as if it’s coming back down to the call open interest strike.
When you are looking at the peak call open interest strike, which is your resistance, you will start to see traders selling and unwinding their positions essentially ‘pinning’ the stock near that strike price.
On the other side when we are looking for support for a stock we can look at the peak put open interest strikes.
As shown above that $275 put open interest is still high for the July expiration. You can also see the Peak call open interest strike is right around $305-$310.
We can take a closer look at the current levels for QQQ and see that starting to play out right in front of our eyes.
When QQQ breaks $310 it becomes the point of resistance. We start looking towards the other side and see it start to bounce off the support at $275.
There is a lot to go over there so be sure to digest all of that at your own pace. Be aware this can be very labor intensive.
That’s why you have me!
There is a lot of opportunity to catch a rapid move between 275 and 310 on QQQ. You need to be prepared to grab the triple-digit opportunities that could come from this!
I’m happy to tell you what my thoughts are on open interest and even show you why I feel this way. That’s the beauty of my premium services we have a smaller audience so I’m able to be a bit more focused on each question and really get into the down and dirty details of trading this crazy market.
If you want even more details about this and other technical trading strategies I’d recommend giving Gabe a call (855) 509-6600 ASAP. We have a credit that can be used for any of my premium services that expires tonight at midnight and I’d hate to see you have to dig into those profits even more by missing this discount.
Quantitative Specialist, Penny Hawk
June 21 2022