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How do YOU use Options Open Interest to Make Trading Decisions?


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mtzimmer1's Avatar
 mtzimmer1 
Upstate NY
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Today I decided to conduct a study in open interest and the results are intriguing.

Test period: 1/6/20-3/13/20 (encompasses a wide range of market conditions/volatility.)
Instrument: SPX

Protocol: Identify the strike in the nearest expiration with the highest cumulative put and call open interest. Record next day close-to-close percent change in SPX.

Results: Up until 2/21 the results favored trading away from the strike with the greatest open interest, but once volatility exploded the results began to strongly favor trading towards this strike. Another interesting observation: throughout the entire test period Monday and Friday displayed the highest likelihood to trade towards the strike with the most open interest.

Opinions? Insights?

Please share!
-Zimmer


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suko's Avatar
 suko 
Ogoto Onsen, Japan
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Could you say that it's generally the case that the spread on high OI strikes is narrower?


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mtzimmer1's Avatar
 mtzimmer1 
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suko View Post
Could you say that it's generally the case that the spread on high OI strikes is narrower?



I believe that is true in most cases.


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suko's Avatar
 suko 
Ogoto Onsen, Japan
Legendary Market Wizard
 
Experience: Intermediate
Platform: Tasty via OA
Broker: TOS
Trading: SPX, XSP options
Frequency: Daily
Duration: Hours
Posts: 1,509 since Oct 2013
Thanks Given: 850
Thanks Received: 1,508

I must confess that I tend to fixate on the strikes with OI for the reason that the spread is often doable.

Recently I have also developed a degenerate fetish for abnormal interest strikes very far out of the money. Recent champ in this regard is esp. the TSLA JAN 2020 5, which sometimes has a decently narrow spread.


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Last Updated on April 22, 2020


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