Could you please explain how you know about the quantity of put and call options on the QQQ and why the market makers want to stave off rally attempts? (November 20, 2003)

  You can find the open interest of puts and calls on the QQQ, OEX, and any stock or other index at several places on the web. One is www.pcquote.com. You can get a quote on options and it will show you the open interst as well for each strike and for each month. When looking for potential impediments to market or individual stock moves close to expiration, look at the current month and the call and put options that bracket the current price. Look for the big open interests. Those are the strikes that could act as an impediment.

We say could because it is hard for any individuals, even acting as a group, to hold the market tide back if there is a strong surge of interest in either direction. News, positive or negative, could push it past those levels and the market makers could not stop it.

Why would they want to do that? Because market makers take on huge amounts of risk in order to provide liquidity to the market. They are not just matchmakers, they move in and buy in their own account then turn and sell. Or they sell and then turn and buy. If things slow they are theoretically supposed to step in and buy or sell to get things moving. Again, they are taking on great risk and though they try to stay as neutral as possible, they are often on the side against the majority of open interests as they are there to help make and provide a market. Thus, if they can spread a little loving influence when things are slow, they will try to do so and keep the expiration close at levels where they will come out ahead by virtue of where the indexes close. In other words, their call and put positions work to cancel out any loss if there is no big price swing. That is why we see some pretty strange trade at times on expiration as investors try to roll out of posititions to give themselves more time and market makers attempt to stay market neutral.


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