I have been depending upon peak open interest in SPY, NFLX, etc to determine my trading and stops over the last several days. To make sure you see the importance of this, I have been short 40 NFLX put spreads 120/117, which have been under near continuous pressure for the last four days.
During last Friday's expiration peak open interest was SPY 201.5 and NFLX 118. I held my spreads throughout that day even though they were underwater as both of these levels held to the close. I had hope that with peak open interest at 120 for this week, the pressure would relent. That was not correct as peak open interest shifted to the 115 level.
Peak Dec open interest was at SPY 200 and NFLX 115 both of which held on Monday, simultaneously. Part of this was enabled by the fact that I observed a downward flag was in its final stages developing on the SPY, which implied a termination of the move, which said I might as well hold, since I couldn't lose anything else in the spread, being in the money at that point. However, as soon as the VIX showed signs of dropping out of the sky from resistance at 25, my resolve to hold was firm. This was particularly true when the VIX closed more than 3 points below the peak; a buy signal. The SPY was easy to hold after that, but NFLX continued to test 118 throughout the day today. However, large - not peak open interest, continued to be at NFLX 120, and overnight 110, where peak open interest actually resided, was hit. At that point, with the $NYMO having bottomed, I held on through today. Once the FED spoke, NFLX began to move out of the 1-2 wave configuration and the spread should finish out of the money. I am not sure I did the best management of my stops, but keying on the peak open interest told me when the odds were in my favor. If you go back on a 1 min chart you will see the peak open interest points were where the market held throughout the last four days. Had SPY 200 broke I would have bought all my 120 puts and held the 117s. This was true for another 5 spreads in other stocks that I had, which were not in that bad a shape as the NFLX spreads were.
In addition, it was SPY 205, which had the second highest put and call open interest, which held today prior to the FED trigger, and it was very important that it held as the low, this should enable the market to rally Thurs & Fri to chase the SPY 210 level as they are buyer dominated and will act as a magnet for the market over the next two days. See Schaeffer's Research about this process on his sight, if your interested. He discusses it each week in some form.
