What Happened: After ripping Friday over 30%, Gores Guggenheim Inc (NASDAQ: GGPI) has clearly generated a lot of attention as it’s traded over 112 million shares today, which is more than five times the 10-day average of 20 million shares.
On top of this, options traders have gorged on calls today trading over 299,000 calls and approximately 37,000 puts producing over 337,000 options on the day (image below).
See Also: What’s Going On With The Polestar And Gores Guggenheim SPAC?
This is a huge number of options traded since prior to this Monday, there were only 207,000 calls and 47,000 puts (total of 254,000 options). Hence, we’ve traded over 130% of the total options in one day.
Why It Matters: Generally when a stock trades over five times its average shares, you’d expect the stock to either be gaining or falling massively. However, the stock is trading right around its cash open price near $14.80, and it can’t seem to make strong gains on the day, so what might be the cause of this?
Looking into the options market, it’s important to note the stock only has monthly expiries. Thus we have the November expiry this Friday, but the next expiry isn’t until Dec. 17. This means options traders holding these front-month expiries will want to “monetize” (i.e. close) those options in profit soon, or be exposed to time decay (theta) for each day they hold until this Friday.
This is important because today alone, option traders produced almost 130,000 calls expiring this Friday (image below).
What’s Next: The strongest open interest for the Dec. 17 expiry is between the $10 and $12.5 strikes, while falling off materially for the $15 strike. Thus, once all of the options for this week roll off, the December open interest will start to take over. With the largest concentration between the $10 and $12.5 strikes, this ‘suggests’ the stock may pull back into that zone before finding support.
If however, the stock is able to close above $15 for this week, you may see option traders roll up their expectations and start to look for options above the $15 strike for December.
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