"Pin the tail on the donkey trader ..."

Looking at the option chain for National Australia Bank below, (NAB.AX), I notice a couple of interesting observations :

1. The open interest for the August chain, there are 6,550 PUT contracts for the $30 strike and 9,290 CALL contracts for the $32. If we assume the big fund managers are pushing the price on market around for the stock, then by the August expiration we might expect the stock price to gravitate towards $32 as this is where the bulk of the risk hedging has been placed.
2. When we analyse the September chain, the bulk of the contacts are for the $31 CALL(8,330) with the PUTS having their peak open interest at the $29 strike (5,300)
3. Taking each of these points together, it would seem to indicate that in the near term NAB was set to rise to around $32 and then by September the price would pull back to at least $31 or even $29.

If you believe in PIN risk, it is an interesting theory, but is there any other evidence we might be able to review to get some comfort on the direction of the NAB price in the near term ?

NAB Option Chain August & September at 11.30am 2nd August 2013

One other piece of information we can look at is the Elliott wave count for NAB to see if there is a similar pattern.

If we look at the daily chart below, we notice the following indications of direction :

1. NAB seems to be in a rising Wave 3 with the first target around $32.50 which lines up with the August Call Open Interest target.
2. The 10,70 Oscillator, which is used to track the corporate money and influence, suggests that NAB is still rising.

 

NAB Daily chart 2nd August 2013 @ 11.30am

 Interestingly, it seems that the Wave three is near it's peak and looks to be getting ready to retrace back down to around $29-$30 which is where the bulk of the Open Interest is at present for the September chain.

Whilst these are only observations, they do seem to line up, so time will tell if this theory holds up and we do not end up being the donkey being pinned.

 

 

Cheers