Option Wall Analysis — Reading the Order Book

Goal

Use option chain data to predict short-term price magnets (next 1-4 weeks) by finding:

1. Max pain — strike where option holders lose most (= dealers profit most)
2. Call walls — high call OI = upside resistance (writers will defend)
3. Put walls — high put OI = downside support (writers will defend)
4. Put/call ratio — sentiment indicator
5. Dealer gamma positioning — how dealer hedging affects price

Core Concepts (1-min crash course)

What is "max pain"?

The strike price where the most options expire worthless = where option writers (dealers) profit the most.

Theory: As expiry approaches, dealers hedge their books, and the gravitational pull is toward max pain. Most reliable on monthly OPEX (3rd Friday) and quarterly OPEX.

What's a "gamma wall"?

A strike with massive OI (e.g., 50,000+ contracts). At this strike:

• Dealers are short calls → they BUY stock as price rises (buying acts as resistance breaks higher)
• OR dealers are long calls → they SELL stock as price rises (acts as resistance)

Practical reading:

• Highest call OI strike = often resistance (writers defend)
• Highest put OI strike = often support (writers defend)

What's "put/call ratio"?

• Total Put OI / Total Call OI
• > 1.0 = more puts than calls = bearish sentiment
• < 1.0 = more calls than puts = bullish sentiment
• Contrarian indicator: extreme >1.3 = capitulation low, <0.5 = euphoria top

The 4-Step Workflow

Step 1 — Run max_pain.py

uv run --with yfinance python $(ls ~/.claude/{skills,plugins/claude-investment-skills}/review-investment-screenshot/scripts/max_pain.py 2>/dev/null | head -1) TICKER 4

This gives you, for the next 4 expiries:

• Max pain strike
• Spot vs max pain %
• Top 5 call walls (resistance)
• Top 5 put walls (support)
• Put/call ratio

Step 2 — Run option_walls.py for gamma map

uv run --with yfinance python $(ls ~/.claude/{skills,plugins/claude-investment-skills}/review-investment-screenshot/scripts/option_walls.py 2>/dev/null | head -1) TICKER 4

Gives top 10 OI strikes for both calls and puts per expiry. Wider view than max_pain.

Step 3 — Identify the trade levels

Read the data:

Step 4 — Build the trade plan

Short-term play (1-2 weeks):

• Spot $200, Max pain $195 (next OPEX)
• Top call wall $210 (15K OI), Top put wall $190 (12K OI)
• Put/Call: 0.85 (slightly bullish)
• Plan: Range $190-210, expect drift to $195 by OPEX
• Strategy: Short $210 call OR long $200/$210 call spread (sell upper)

Around earnings:

• Higher OI tends to span IV crush
• Walls become VERY relevant immediately post-earnings (price magnetizes to nearest wall after IV deflates)

Interpretation guide (real examples)

Example 1: NVDA pinned to $195 (high OI, neutral)

• Spot $198
• Max pain $195
• Top call wall $200 (28K OI)
• Top put wall $190 (24K OI)
• Put/call 0.86

Read: Range $190-200, drift toward $195 into next OPEX (15 days). Trade: $200/$210 call spread (cap upside, collect premium) OR sell $190 put for income.

Example 2: NOK $13, broken upward

• Spot $13.14
• Max pain $11.50 (lagging, just had major earnings rally)
• Top call wall $14 (8K OI), $15 (12K OI)
• Top put wall $12 (5K OI)
• Put/call 0.6 (bullish)

Read: Bullish skew, support at $12, resistance $14-15. Trade: $14 calls if break out, $12 covered puts if pullback.

Example 3: TSLA $250, bearish gravity

• Spot $250
• Max pain $230 (-8% below)
• Top call wall $260 (40K OI) — strong resistance
• Top put wall $245 (15K OI)
• Put/call 1.4 (bearish, capitulation possible)

Read: Dealers want $230, strong $260 ceiling, but extreme PCR = bounce possible. Trade: $245 puts to play the gravity, $245/$235 spread for cheaper.

Output format

# [TICKER] Option Wall Analysis — [Date]
**Spot**: $XXX | **Next OPEX**: [date] | **Days to expiry**: N

## Verdict
[One paragraph: Bias (bullish/bearish/pinned) + recommended levels + suggested trade]

## Max Pain by Expiry
| Expiry | Max Pain | Spot vs MP % | Interpretation |
| 2026-05-15 | $X | +X.X% | Bullish gravity / Bearish gravity / Pinned |
| 2026-05-22 | $X | ... | ... |

## Top Call Walls (Resistance)
| Strike | OI | Notes |
| $X | XX,XXX | Major resistance — needs catalyst to break |
| $X | XX,XXX | Secondary |

## Top Put Walls (Support)
| Strike | OI | Notes |
| $X | XX,XXX | Major support — buyers likely defend |
| $X | XX,XXX | Secondary |

## Put/Call Ratio
- This expiry: 0.XX
- Sentiment: [bullish/neutral/bearish]
- Contrarian signal: [yes/no, what it implies]

## Trade Levels (next [N] days)
- **Range**: $X (support) to $Y (resistance)
- **Magnet**: $Z (max pain)
- **Above $Y**: Breakout, target $YY
- **Below $X**: Breakdown, target $XX

## Strategy Recommendations
- **Bullish bias**: [specific trade]
- **Neutral / range-bound**: [specific trade]
- **Bearish bias**: [specific trade]
- **High conviction**: [single best trade]

Hard rules

1. Max pain is most reliable on monthly OPEX (3rd Friday), less so on weeklies.
2. OI > 20,000 = real wall. OI < 5,000 = noise.
3. Don't trade against multiple confirming signals (e.g., max pain + biggest OI both at $200 = $200 is the level).
4. Earnings invalidate walls. Pre-earnings, walls are theoretical; IV crush + price gap > wall.
5. Cite actual numbers. "Strong support at $190" without OI = useless.
6. Time horizon = expiry. Walls fade as new OI builds for next expiry.
7. Combine with chart. If $200 is wall AND 50DMA AND prior breakout, that's the level.

Common pitfalls

When to invoke

• User asks: "Where's max pain on X?"
• User asks: "What are the option walls?"
• User asks: "Where will X go this week?"
• User asks: "Is there strong support/resistance on X?"
• Pre-OPEX: 7 days before any monthly/quarterly OPEX
• Post-earnings: Day after earnings to see new walls form
• Companion to `earnings-prep`: Add this analysis after earnings-prep

Tool cheat-sheet

Pro tips

1. Friday afternoon before OPEX = max pain becomes very strong magnet (expect price gravitation).
2. Friday after OPEX = new walls form for next month, watch which strikes accumulate first.
3. Combine with VIX: low VIX + clear walls = ranges hold; high VIX + walls = walls break.
4. Stock-specific patterns:

• NVDA: Walls usually break (high momentum)
• AAPL: Walls hold (low vol, mean-reverting)
• TSLA: Walls break violently (high gamma squeeze potential)
• NOK: Walls hold (low vol)

Output combined with analyze-stock skill

If user runs analyze-stock first, then this skill, the option-wall analysis becomes Step 9.5 (between LEAPS and final entry plan):

• Use walls to refine 3-tier entry: instead of "50DMA", use "put wall at $X" if it's higher and stronger
• Use walls to set stop loss: "below put wall at $X = downside extension"