indexit - Friday's expiration removed the support from below the Qubes
from Schaeffer's Monday Outlook
Nasdaq-100 Trust (QQQ – 30.38) front-month open interest: As the market fell during the September 2001 expiration month (even before the September 11 attacks), open interest on the front-month September series was very heavily skewed toward the call side for QQQ. By September 10, 1.8 million calls were open in September to just 640,000 puts, a ratio of 2.8-to-one in favor of calls. This was also the largest, by far, amount of calls or puts that had ever been open on a single series for QQQ on an absolute basis. These calls acted as resistance while they remained open. With the passing of expiration on September 21, these calls came off the books. The incoming front-month series - October - only had 550,000 calls by comparison. With the options-related resistance lifted, the market was able to rally for most of the October expiration cycle.
QQQ is facing a similar, though opposite, situation today. Put open interest in the June series finished out at 2.25 million. This is the first time the total open interest for a single series approached or exceeded the two-million mark since September 2001. But the ratio of open puts to open calls - 2.1 - isn't quite as imbalanced as it was nearly two years ago. Regardless, these puts provided support during the June expiration month, helping to ensure pullbacks would be limited in nature. With the passing of June expiration, July only brings 981,000 open puts with it. This drop in options-related support means that the market is more vulnerable to the downside than it was at any point in the past month. As is often the case with sentiment indicators, the lack of buying potential does not guarantee a selloff; it merely suggests the lack of support in the event a selloff is initiated.
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