3 Charts Showing These Are Unprecedented Times For Options

3 Charts Showing These Are Unprecedented Times For Options

Posted On October 17, 2022 2:03 pm

I’ll be hosting a webinar today (or by the time you read this it will be done) discussing Earnings360. I’ll get you more info on how to participate in this quarterly service later in the week.

Today, I just want to quickly point out a couple of key items I’m observing in the market.

Today’s sharp move higher has been beneficial for Options360’s position in the Invesco QQQ Trust, otherwise known by its ticker, QQQ.

If you recall, we had established a combo of both bull and bear trades 10 days ago. We closed out the bear side last Thursday for a 43% profit and today, we were able to roll the call side to bring the cost basis down to just $0.90. It is now locked in profit

Join Options360 for just and start your one-month trial today!

That said, this whiplash action is not healthy. The way we’re seeing markets move suggests a dire lack of liquidity and a lot of options-driven, and therefore leveraged, market participation. These wild swings in the market also suggest imbalance, and with the moves we’ve seen just through the past week, things look to be pretty out of balance right now.

I bring up these three charts to show how options trading continues to be the tail that wags the dog and how people are getting increasingly short in the near-term, and perhaps becoming a little bit wrong footed in their approach. Let’s take a look at what the charts could be telling us.

The use of weekly (and even daily) options is getting out of control. This graph shows options for SPX, which does indeed have daily options. The trend holds true for the popular ETFs such as SPY and QQQ which have Monday, Wednesday and Friday expirations and, of course, individual stocks come with weekly expirations. 

Secondly, There has been an… let’s just say… unprecedented surge in put buying by retail traders.

This would be the inverse of all the “YOLO” call buying we saw at the highs in mid 2021.

Lastly, the amount of hedges that have been established over the past month has risen dramatically.

With such a large safety net in place across both retail and institutional investors I think it will be hard for the market to break lower in the near term.

Start your one-month trial of Options360 today for just $19!

Basically, it’s a chop fest for now. Our number one goal in a choppy market is to make sure we don’t get diced up. While these may be unprecedented times, options have continued to show they are an effective way to increase our income, however, you have to put in the work to earn so you know what you’re doing, this is where Options360 comes into play.  

While we can’t reliably predict where the market will go next, one thing is for sure, whatever the market throws at the Options360 community, we will be patiently waiting for our next big opportunity.

Beat the FOMO (fear of missing out), be sure to snag that next opportunity… With us, a growing community of options traders, let’s win together.

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

Related Articles