What to Expect...

This is a follow up post of the original, "Theory on How Op-Ex Friday Fits In To the Big Picture"

In the original post, I said,

"I just looked at the SPY Options chain, between $120-$130 there's heavy open interest in both, but about 60% more in the puts then the calls.

So this is just a theory, but if Wall Street creates a SHARP sell-off between now and Friday, they wipe out most of the call contracts, the holders of Put options may be more likely to exercise their Puts then sell them if they see such a sharp sell-off. The long term 3 has been bullish, so if next week Wall Street runs the market up then the exercised Puts will be in a short squeeze and they effectively knock them out too on a Sharp rally."

Does this chart look like a natural progression or does it look like there's been some planning and intervention?

A smooth rounding top is cut off in to a SHARP SELL-OFF, so the first condition of the theory above , "if Wall Street creates a SHARP sell-off between now and Friday, " has been met as the theory was posted yesterday. 

Yesterday I was looking where there was heavy open interest, in calls and puts and a lot of that was in the $130+ area. I compares the $120-$130 calls vs. Puts and found 60% more open interest in the Puts. As of now, all of those calls with heavy open interest are wiped out and worthless, and this is what I was expecting and why I said we needed a SHARP sell-off between now and Friday. 

Now looking at the calls and puts within the area I think the S&P is most likely to hit...

Around $1100 on the S&P-500, although knowing how double bottoms work and throwing in the head fake concept, I would expect a marginally lower low so perhaps a bit below $1100 SPX.

In the range of $115 SPY to $110, currently the open interest for puts is 10x more then calls. The key to this theory is that the sharp sell-off will make the put holder's exercise their puts and take possession, with such a sharp sell-off, they'll be expecting the next leg down. 

if this is what happens and the 3C charts and even the Dollar/Euro charts suggest it is likely...

(the red arrow represents today to Friday, the green arrow represent next week as early as Monday and throughout the week)

then Wall Street will have caused the calls to expire worthless and will short squeeze the shorts next week. At this point I think we've had our final rally and the second shoe drops.