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JAJO Pain

01/20/2012

 

 

 

12/27/12 - I have been tracking JAJO, unfortunately it shows the same data as Jan 19 monthly. There is no difference.  I imagine this year is fiscal cliff one-off related.

 

03/18/12 - No reason for a JAJO graph for April. The option landscape looks the same either way I graph it. I will keep track of it and if something comes up will let you know.

 

This is the OI that has been added or removed from the Jan'12 options since December became the front month. I will update this chart on Sundays. When Jan'12 becomes the front month I may start an additional graph showing only front month accumulation/dissipation.

What is JAJO Pain? 

AAPL is on a January, April, July, October option cycle. When options are left on the board for 2 years at a time the OI can become less relvant. An example would be Jan'12 options. These first traded in 2009. What are the option writers real cost basis? Have they already made a huge profit?

In the 1-2 years that have passed, option writers may desire a totally new outcome only seen by clearing away those stale option positions. JAJO Pain will only show the positions that have accumulated since becoming a front month. This way we can see the whole picture and a more up to date one to make our decisions.

  • Are you not updating the JAJO chart any more?

    • It doesn’t show anything different right now. Will update when diverges.

  • Omejia

    I NEED THE STAND FOR “JAJO”

  • Craigwilcox

    Travis, thanks for posting this info. Would you consider making the x and y axis labels larger for those of us who access your posts on iPhones?

  • Tigerpaw 1973

    Travis – Great site. What issue I find is that it’s difficult to track all your comments since they are all on different web pages (e.g. weekly, monthly, JAJO, etc). It would be much easier to read and track your comments if they were all on the same page.

    Thanks.

    • I can see your point. Thing is, each page has different time frames. I’ll look into putting them in 1 place. Thanks

  • Hey Travis–
    I really enjoy your insight on the market, and I was wondering if you could help me find some more info on the topic
    I was wondering where your able to get all this detailed information like the JAJO in real time?

    • Hey Mandy,

      Only place that uses OI data for trading is here. I do not know of any other site. ‘JAJO’ is my own concoction. Open interest is not a real time data point as of yet so we have to wait on that one.

      • Mandyfroulaadams

        Alright, well this is a very interesting chart you have created. I’ve noticed your frames method of prediction working to perfection in the past month. What does it mean though when the number of options is in the negatives? I was also wounding if you think that the jajo will more noticeably affect the market since these options are more recent, and you have mentioned that a lot of the options sold before the jajo are already stagnant, and are just held positions that maybe won’t have much of an effect on the stock until the very last days of the month. I appreciate all the information you supply on your site I have learned a lot!

  • Biopharmadeals

    Can you please explain how to calculate JAJO pain? Do you just subtract option interest from previous months from Jan ’12 options, i.e. subtract Dec ’12 options interest from Jan ’12 options interest?

    Are there books that you would recommend to learn more about using options interest/volume for trading?

    Thanks for sharing your thoughts and ideas. This site is very informative.

    • Yeah, you just remove the old options is all. I am not aware of any books using volume for trading. I also haven’t looked either. Sorry. I have just picked up on it thru the years. If your looking for basic/intermediate options education, the options industry council or CBOE have free webinar classes which I would recommend.

      • Biopharmadeals

        Thank you very much for clarifying. I’m sorry to keep pestering you. It looks like you subtracted the Jan ’12 options interest on (approximately) 11/21/11 from 1/1/12 to get JAJO pain. Is there a particular reason you chose that time frame (about six weeks) or do you just always use six weeks before the current date? Thanks again.

        • No ‘tried-and-true’ reason. I believe that gives enough time to see the true front month OI show itself.

  • Anonymous

    TRVIS: I LOVE TO LEARN THE OPTION TRADES IN APPLE. SO FAR I JUST DEAL IN LEAPS AND QUARTERLY CALLS.I LOVE TO LEARN ABOUT CALL SPREDS, PUT SPREADS ETC. IS THERE A BOOK THAT EXPLAINS THESE TO ME CLEARLY.THANKS

  • Buckterry

    What impact do you see coming from all of the Jan 2012 $400 calls that are now in ITM? Can you explain again how market makers hedge when closing open option positions?

    • I don’t see any impact as of now as the retailers that hold those $400 calls will hold them to the end. So on opex day we may see some movement but when we get there will talk about it. When a MM sells you your call, they offset it with 100 shares (simplified) When you sell/close your calls they sell those shares to once again go flat. This causes selling pressure.

  • stockraker

    Keep up the awesome instruction! ~StockRaker

  • Buckterry

    Jan $380 Put takes OI lead displacing $350 strike . . . . . nice! Jan $380 Put OI goes from 17,051 to 25,655. No other call strike is challenging the $400 Call strike OI. As it looks now, AAPL is range bound.

    • Yeah, thats a good sign. Sure wish Puts would dominate in AAPL for once in a blue moon. Calls dominate every week, month etc and puts so much selling pressure on the stock. Ready for Dec opex to be over and get to Jan’12

  • Buckterry

    JAJO shows max pain Put strike higher than Call strike . . . . Reversed positions? What do you make of that? Were these calls opened mostly late November?

  • Guy_weinzapfel

    Yikes. This is a bit disconcerting as it suggest that sellers might be induced to drive AAPL down to 370 or lower simply to render worthless all January calls at & above 370. On the face of it, this seems unlikely, given the expected positive earnings report. But still, as one holding a number of 370/375 spreads this graph is unsettling. Your thoughts would be most welcome.

    • No don’t look at it that way. It’s a bullish sign. Remember I kept saying you want to see the call OI come in lower the better, well this $370 is it. The call OI came in too aggressive and then AAPL cleared them. Don’t look at this like AAPL will be pulled down. Look at it as the $400 wall on the “actual” January OI may be an illusion as the recent activity is all on the $370 calls.

      • Guy_weinzapfel

        Thank Travis. After posting my concern (and boarding a flight), I wondered if what you replied might not be the case. So thanks for the confirmation. While I’m writing, I want to say thank you for all the info you have posted over the past many months. I began trading call spreads about a year ago. Did well with quarterlies, but bombed on monthlies. Could not figure out why AAPL was going down after reporting great earnings. Saw something on max pain, but couldn’t make heads or tails of it. Then found your postings and everything made abundant sense. I still got burned on a couple of weekly trades. So I’m sticking exclusively to quarterlies for now. Earnings tend to force the institutions to “let go”. Perhaps, over time, I will venture back to shorter duration trades, but I’m quite happy with the results I’ve had recently. Many thanks. G

        • No problem. Yes, stick to what works. Have a long term plan and slowly build wealth. Doing this you will outperform a day trader any day. I put up all the info for people to see it, doesn’t mean you need to trade every graph. Most of the time it’s just best to “know why” If trading 3-6 months out at a time works for you. Stick with it and remember what got you to that point. Zero reason to change what’s working. Look at my spread account in portfolio model. I would rather show people a safer way to not take losses instead of making big gains. A great thing comes from concentrating on not taking losses — gains pile up.

  • Chet

    If I understand your theory and the above chart right – AAPL from options OI standpoint is poised to take off. Am I right?

    • If we can clear $400 and prove buyers can overrun the options market then we will go on major run. Waiting to see how $400 reacts for now. Above chart is a more in-depth look at January. Will keep an eye on it as we get into January as a front month (after Dec opex)

  • Frank Capra03

    Travis,

    Why is your graph only showing 25,000 OI at the $400? There are over 70,000 OI?

    • Anonymous

      This is not the actual January options graph. It’s only showing the new positions since December became the front month. $400 strike has only accumulated around 3K OI.

    • Mickey

      I think this chart is showing the options open interest ADDED since these LEAPS began trading.

  • Jeff

    Travis; nice remodeling on the site! The JAJO pain page is a good addition. The massive Jan400 call OI seems like a brick wall. If AAPL can get through it and run up into earnings (buy the rumor), do you think the 400c will close down before expiration or will it remain and beat AAPL back to 400 in the 3 days after earnings (sell the news). Your JAJO model will be a good tool to track this. Thanks for all the help! Jeff

    • Anonymous

      I’m as curious as you to see how AAPL reacts at $400. I really don’t know. But we will find out real fast what Wall St thinks of $400 (does bounce right off and go lower or go straight thru) I’m actually not all that concerned (yet) with the $400 OI for Jan’12. Those have been the highest OI for a year + now. Best advice is watch the stock reaction at $400 area and go from there.

  • Gekemp

    Travis,
    In your “Breakout to 400”, I guess you explained why I lost $2000+ on selling call spreads last week but didn’t understand anything you said.
    You may have even addressed this situation with AAPL during the week. I have no idea because I can’t correlate what you are saying with the
    pictures. It might as well be Greek!

    Glenn Kemp

    • Anonymous

      I showed “my take” on the call side in red all week and have been saying I was waiting for a breakout. If you still would have wanted to sell calls, you would have wanted to sell covered calls. This way you would have not taken a loss but only capped your gains.