As we have seen numerous times, the market tends to be pinned on options expiration Friday. Last month we saw (I don't remember how many contracts) a pin that was seven cents below a strike that took out a bunch of additional contract, just seven cents!
For the most part, retail traders buy calls and puts whereas professionals write them, the juice is in writing contracts as the premium and time decay benefit the writer. The majority of options contracts will expire worthless and as mentioned, the market often looks for the point of maximum pain and targets that level to make the most amount of contracts expire worthless.
Below are the SPY Call and Put options chain for May expiration Friday.
SPY Calls
SPY PUTS
Just some quick math, although I know the open interest will change as it changed dramatically over 2 days just before April expiration. However between $130 and $136, there's about 245,000 open interest in the calls; compare that to over 1.9 mn Put contracts between $130-$136. Of course we can't expect these figures to remain static or even close on any kind of a significant market move, but from where we are today, a rally of about 3% over the next two days in the SPY would just about take out 1.9 million puts just within that range of $130-$136. From this level, that would be an additional 1 million in open interest taken out. Of course I'm way oversimplifying all of this, but I'm just trying to point out the huge disparity between Call open interest and Put open interest. Assuming the puts are owned by retail as is usually the case, it would seem a swift move up would cause a lot more pain than a move down.
Just for giggles, Here's the chain for UUP for May and below for September where a huge number of calls were sold at $22 and $23 (I believe it was about 100k contracts in UUP sold at Sept. $23)
UUP May Open Interest Calls/Puts
UUP September Open Interest Calls and Puts-a lot more activity in September Calls
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