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Adding Bearish and Bullish Extreme Levels for Shorter Time Frames

Oppomere has been updated to calculate and plot bearish and bullish extreme price levels based on positioning expiring within 2 months and within 3 months.


Why?


Generally speaking, given the same move in the underlying issue, the change in the delta of at/near the money options increases as the time to expiration decreases. For example, given a stock that trades from $102/sh to $100/sh, the 100 strike put expiring in 1 month should gain significantly more deltas than the 100 strike put expiring in 1 year.


Because options that expire sooner have greater swings in deltas, options dealers also need to trade more of the underlying in order to keep their books delta neutral.


Let's take a look at a chart of AAPL with the 2 and 3 month extreme levels plotted on it.

In this chart, there are now 3 bearish extreme levels plotted as well as 3 bullish extreme levels. The darkest shades of red and green are the same as was being plotted in previous iterations of Oppomere charts, the lightest shades of green and red represent the 2 month levels and the shades in the middle of those represent the 3 month levels.


Beginning in early February, AAPL has been running into the bullish extreme levels based on options with up to 2 and 3 months to expiration. So far this year, it has not been able to push into the bullish extreme level based on all expos. You could play for small mean reversions on each trip into/above the 2/3 month bullish extreme levels, but the intermediate term trend is still less likely to change unless/until AAPL trades into the bullish extreme level on the full timeframe.


Happy Trading!

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