Monday, Tuesday, rally days – at least for the Dow. However, the Dow walked right up to the 10,300 level and backed away. This level could prove to be a bit of a thorn in the side of the Dow in the coming two months, as it is the site of heavy call open interest for February and March. In the February option series for the DJX, the 103 level (which corresponds to the 10,300 level for the Dow) has open interest of 2,184. While this is not peak open interest, it is quite a bit of open interest – and it is at the level the Dow is advancing toward. A high accumulation of open interest can place another layer of resistance in the way of a stock.
If heavy February call open interest at the 103 level wasn’t enough, the March series of options has 103 as the peak site of call open interest. This adds to the resistance for the index as it approaches this benchmark.
The 103 level on the put side holds similar activity. However, we can’t quite interpret this as support. The problem is that the DJX will need to be above the 103 level for that logic to hold, and this will obviously only happen when the Dow goes above 10,300.
Tackling 10,300 may be easier said than done. This level acted as support in the past, and it could reverse roles now that it is given the chance. Of course, this psychological resistance is on top of the options-related resistance that the Dow may face. Watch the Dow’s activity over the next few days. A break of 10,300 could signal another leg up in the current market. A rejection at 10,300 – while not fatal – would be a step toward confirming the belief that we are in a consolidating market.
Dan Passarelli is the author of the book Trading Option Greeks and founder and CEO of Market Taker Mentoring LLC. Passarelli began his trading career trading on the floors of the Chicago Board Options Exchange and the Chicago Board of Trade making markets in options. He regularly shares trading insights and educational tips in his options blog (markettaker.com/options_blog/). Dan can be reached through his website MarketTaker.com and can also be followed on Twitter at twitter.com/Dan_Passarelli.