The glitch in the matrix no one’s talking about : Notable decrease in open interest of OTM calls

Submitted by ariesdrifter77 t3_10pq5zk in wallstreetbets

TLDR: A significant decrease in OTM calls that have about a month or 2 till expiry indicates market makers/ whales are closing their covered calls because they are at high risk at printing.

After watching thousands of my money evaporate buying FDs I started to think about the idea of selling covered calls. Then I realized that requires having a lot of money to buy snares so I got to thinking about - how do the market master regards know when to sell calls and when to buy them? There’s been a lot of focus on volume of options or short interest and found it’s not that reliable of an indicator. But what about a decreased in open interest? Wouldn’t that indicate that the whale regards are closing a big covered call position bc they have all the tools/ data we don’t and know that it’s time to buy back their calls.

I’ve been watching this and found that it’s most reliable when :

  1. The decrease in OI is higher than 80% of all entire OI.
  2. Strike price range is at least +10% out of the money 3)The expiry date is at least 2 weeks to a month away.

So what good is this theory without a case study? I found an example:

LVS 60c 02/17/2023 OI: 13080 OI change : -12062

LVS 60c 03/17/2023 OI: 21453
OI change : -11738

(Info sited from Barcharts website today)

I haven’t been tracking LVS and have no clue what’s about to happen but we can see that some major whale regard activity has been in play today. They’re buying back all these calls bc they’re about to print.

RISK / HOW I COULD BE WRONG:

It’s possible that MM are closing these positions to open new ones (selling puts or more CCs that are further dated / more OTM?

This is definitely a possibility to consider. Also I’m highly regarded so that’s something to consider as well.

Let’s see if LVS goes for a run now that these calls have been “bought to close.”

I don’t have any position in LVS but I’m considering buying a few of these calls after finding this info.

16

Comments

You must log in or register to comment.

Aliceable t1_j6ltmr6 wrote

someone explain this to me like I’m a robinhood user

30

Dorktastical t1_j6luiha wrote

Don't worry about it, the first paragraph makes it obvious this guy doesn't know what he's talking about.

20

Lucky_Bag_5301 t1_j6lu4us wrote

Big investors are betting less on bull run. They are selling their bets. Their bets were at high risk of losing.

1

Traditional_Cat456 t1_j6mqz51 wrote

I don't know if this is troll, or too regarded to read, but this is the exact opposite of op's thesis.

13

DenuvoSuks t1_j6mgl6a wrote

this is not rocket science, we are at a peak. Smart money buys low and sells high.

1

Bull_Winkle69 t1_j6m4gzq wrote

Couldn't it mean the opposite?

To sell you need a buyer. Maybe fewer people are buying those calls because they think the market is about to correct further?

7

swareonmemum t1_j6o6tkm wrote

yeah itd be more informative if we knew if these options were being bought back above ask to indicate more sentiment

1

jeromememememe t1_j6lv1x3 wrote

couldn’t it also be that whales are closing their long calls, i.e. bearish?

6

ariesdrifter77 OP t1_j6lwajy wrote

Why would they” buy to close” an OTM covered call if they don’t think it’ll go ITM?

Selling covered calls is bearish. Buying back a CC To close it should be bullish. In theory

0

polloponzi t1_j6lwp4u wrote

>Why would they” buy to close” an OTM covered call if they don’t think it’ll go ITM?

Because they are in profit and they would rather take the money than risk losing it because the market may keep going sideways or tank.

6

ariesdrifter77 OP t1_j6lxod6 wrote

It’s possible they sold for higher premiums a while ago and they’re buying them back lower, I get that. But why not let them expire worthless or buy them back cheaper IF* the market goes sideways or tanks?

−1

polloponzi t1_j6lyhzr wrote

They might have long calls and they might be 'selling to close'. Open interest will go down if those with long calls sell those to close the position

4

AcceptableEnd8715 t1_j6myuin wrote

This. The majority of the call action was in the 410 and higher range and it seems likely we won’t get there before the major sell off

2

Fibocrypto t1_j6m19m5 wrote

Selling covered calls is a stradegy that creates income consistantly for those who do it . Yes they get blown up once in a while but more times then not they create income similar to a dividend each month or 2 on a specific stock

1

ariesdrifter77 OP t1_j6m4xfb wrote

And us at WSB buy those calls (for the casino’s income). Except this time the casino is buying to close the CCs on itself. LVS is a casino. This is making more sense now

0

Fibocrypto t1_j6m5k9i wrote

If you are correct then the casino knows what the fed is a out to do otherwise it make zero sense to be closing

1

vacityrocker t1_j6lwdrw wrote

The calls that might print would have been hedged at the moment they were sold... so no it doesn't mean the "whales" are worried about them printing.

4

ariesdrifter77 OP t1_j6ly1x4 wrote

My question is why are they buying them back when they could expire worthless or get cheaper. LVS had a nice dip today so that could be why?

2

mbr902000 t1_j6m9xe5 wrote

Im convinced not a single person on this sub understands anything about covered calls. As soon as you use the word "risk", youve shown how fucking dumb you are

4

tehs1mps0ns t1_j6mutxr wrote

The drop in OI is the result of investors closing their long calls, not market makers closing their short calls. Just look at the volume and price action on 01/26 (indicative of increased demand for calls, not increased supply of calls). That volume created a surge in OI, which then reverted back the next day. Market makers don't care, they are gamma and delta neutral (hedged).

2

Aggressive-Wrap7211 t1_j6n5wkl wrote

Yeah I don't understand why OP thinks market makers are closing their short positions because of upward risk. Market makers are just selling to dumbasses buying OTM calls, while they simply hedge and get premiums. Less OTM calls means less demand.

This is a buy-side signal. Not a sell-side one.

2

VisualMod t1_j6lssjs wrote

User Report
Total Submissions 3 First Seen In WSB 2 years ago
Total Comments 663 Previous Best DD x x
Account Age 4 years [^scan ^comment ](https://www.reddit.com/message/compose/?to=VisualMod&subject=scan_comment&message=Replace%20this%20text%20with%20a%20comment%20ID%20(which%20looks%20like%20h26cq3k)%20to%20have%20the%20bot%20scan%20your%20comment%20and%20correct%20your%20first%20seen%20date.) [^scan ^submission ](https://www.reddit.com/message/compose/?to=VisualMod&subject=scan_submission&message=Replace%20this%20text%20with%20a%20submission%20ID%20(which%20looks%20like%20h26cq3k)%20to%20have%20the%20bot%20scan%20your%20submission%20and%20correct%20your%20first%20seen%20date.)

^^Discord ^^BanBets ^^VoteBot ^^FAQ ^^Leaderboard ^^- ^^Keep_VM_Alive >TL;DR: A significant decrease in OTM calls that have about a month or 2 till expiry indicates market makers/ whales are closing their covered calls because they are at high risk at printing.

1

Fibocrypto t1_j6m11sr wrote

All of the option sellers I've ever talked to never buy thier short puts or calls back . If a person is long the stock and the short calls get exercised they simply sell the stock . III f the short put option goes in the money they then buy the stock. What you are looking at might work and if so you could use it as part of your own entry or exit stradegy but for me I'm not sure

1

ariesdrifter77 OP t1_j6m5yjx wrote

The only way these contracts that I’ve stated could lose open interest is if they are “ bought to close” by the writer (owner holding the shares). It doesn’t have to be a institution or market maker. It can be someone with a lot of shares . like insiders who are working above the line at Las Vegas sands and know their stock is about to melt up and don’t want to get exercised. After stonk goes up they sell some fresh ones to degens who have fomo and while the IV is higher to collect bigger premiums. This could be totally wrong but this is how it looks to me

0

AppleParasol t1_j6meujd wrote

Why buy calls when you can sell puts and take cash directly out of their pockets?

1

Tyr312 t1_j6mnw33 wrote

We did talk about it and we also pointed out that traders are now focusing on weekly and daily options spread in order to maximize short term return.

Look everyone knows the market is overvalued and it will dump. No one knows when. So until more data comes in guess what. Gambling everyday.

1

SproutedWinkle t1_j6mt66w wrote

Sounds like the music is about to stop

1

AcceptableEnd8715 t1_j6mym98 wrote

I been watching the open interest on calls as well and there’s been a huge decrease for the 2/17 strike it’s by and far the MOST bough date in the 2-4 week stretch since I’ve been watching. Shit it was even hella active at more than a month out.

I have a feeling someone caught a leak (see also: “picked up on a signal”) that wasn’t available to the general public. And jdaddy is gonna hit us w the dazzle dazzle powpow tomorrow of 50 even tho the market swore for the last month that he has “signaled” 25. This was all a bull trap and rug pull to hose the retail investors

1

Icy-Subject-6118 t1_j6n1zjv wrote

That’s not why. And it’s dumb. They don’t care if they print. They will just buy the ask. Something you can’t afford to do. They’re not selling otm calls because the premium is significantly less because IV is very low. Spy is expected to stay at this range or drop. Why buy for more than 400 when it’ll be less than that in a weeks time

1