Call Walls and Put Walls can provide a more structured approach to defining key levels of resistance and support based on open interest data – rather than simply looking at backward-looking price data.
The “Call Wall” is a concept in options trading that signifies a strike price with the largest net call gamma – i.e., the highest concentration of call options open interest (the total number of outstanding option contracts that haven’t been settled) at a given level.
This level is important because it usually represents a major resistance point in the market, where prices tend to slow down or reverse. Typically, the Call Wall acts as upper bound of the probable range.
Namely, it essentially provides traders with an insight into where the price is likely to encounter significant resistance. The daily observation of Call Walls is particularly important in directional analysis.
Conversely, a Call Wall that shifts lower indicates a bearish sentiment, as this downward adjustment suggests the upper resistance is moving down with it – i.e., constraining upward price movement.
The “Put Wall” can be an important support level. It’s marked by the strike price with the highest net put gamma, indicating the largest concentration of put option open interest.
This level serves as a safety net where the market often finds support.
How influential is it? It depends on the amount of open interest and how that influences hedging operations and related trading activity relative to other influences on the security/asset.
When prices approach the Put Wall, it’s common to see buying activity as traders look to enter long positions, as they often view it as an area with reduced downside risk.
Also, traders holding put options may close positions at this level as a way to secure profits as the price nears the support threshold.
The Put Wall generally represents the lower bound of the probable trading range. For those in long positions, setting a stop loss slightly below the Put Wall is a common risk management tactic, providing a preset point to exit a trade if the support fails.
A shift in the Put Wall’s level also signals market sentiment: a Put Wall moving up suggests a bullish environment, while a downward shift implies a bearish outlook.
Identifying Daily Trading Ranges
The first step in using call and put walls effectively is identifying these levels to establish the day’s trading range. This involves locating the highest open interest for call options (call wall) and put options (put wall). For day traders, this is often done using “zero days to expiration” (0DTE) options, but the next closest expiry can work as well.
Charting the Range – Once the call and put walls are identified, plot these levels on your charts. This gives a clear view of the likely support and resistance points, forming a trading range if the market opens within these levels.
