SPY, QQQ: As Earnings Volatility Persists, Find Out Crucial Trading Levels Priced In By Options Market

U.S. markets registered losses this week as nervous investors stayed cautious ahead of some big earnings releases. Although a plunge in deposits at First Republic Bank FRC rekindled investor concerns about the banking sector's health, upbeat earnings by Alphabet Inc GOOG GOOGL and Microsoft Corp MSFT led to some paring of losses during extended trading hours.

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However, market participants are keenly watching out for earnings releases from major players like Amazon.com, Inc. AMZN and Meta Platforms Inc META this week. As some bit of volatility could still be expected over the remaining three days of the week, here's a look at how professional traders are positioning themselves in the options market for some of the popular exchange-traded funds.

1. SPDR S&P 500 ETF Trust SPY: Options expiring on Friday indicate the maximum open interest accumulation can be seen at the $412 level among out-of-the-money Call strikes, indicating the level could act as a stiff resistance in the near term. On the downside, a $405 Put strike has the maximum open interest accumulation, indicating decent support could be expected at this level for the week.

2. Invesco QQQ Trust Series 1 QQQ: Options data show maximum open interest accumulation at the $310 level, indicating the level could provide some resistance in the near term. What is noteworthy is the fact that the ETF closed at $309.99 on Tuesday, almost at the level where the highest open interest accumulation is being seen. This could mean traders are considering limited upside for the ETF this week. On the downside, the $305 level could provide decent support.

It is noteworthy that open interest levels only provide a fair idea about support and resistance levels. In the event of a major news break or a macro event, asset prices could witness huge movements that could lead to a subsequent shift in open interest levels as well.

Furthermore, options would be relatively expensive this week due to the higher implied volatility prevalent during earnings season, making it an ideal time for writing/selling these contracts and collecting premiums. However, massive one-sided and unexpected asset price movements in the wake of earnings announcements could betray the message conveyed by open interest levels. Hence, a prudent strategy would be to avoid unhedged or naked positions in options.

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