Trading Ticket: Single-Currency ETFs by Jayanthi Gopalakrishnan
Recently, the Chicago Mercantile Exchange (CME) launched a new tool for traders that will allow them to look at open interest patterns in equity option contracts. Many traders like to look at the open interest to help them make decisions on which options to trade, since there can be so many different options (puts or calls, different months, and different strike prices). The open interest profile tool by the CME will provide traders insight into the direction of the equity markets.
One of the main things that traders will look for with this tool will be the support and resistance of markets by being able to see where large contracts of open interest at particular levels could indicate support or resistance. Since out-of-the-money options tend to be more active, traders want to see where extremely out-of-the-money options are trading as a possible indicator of support or resistance. For example, in Figure 1 you will see a display of the open interest and open interest difference for the July 2012 Standard & Poor’s 500 contracts on July 16, 2012. The spikes in the open interest and the open interest difference (that is, the difference in open interest between the current day and the last trading day) help you determine where the support and resistance levels of the specific market are.