Another expiration, another chance to catch up on the bizarre world that is options trading. Last expiration was a wild one, you recall, where I showed you a strategy I used to buy

out-of-the-money calls to insure against a big week.

This week has proven much tamer. I expected some nice lift and even thought that something extraordinary could occur, because option market makers had some short positions that could have caused some pain for them if the market was not contained at a lower level.

Let's use this piece to talk about how this process works. First, let's walk through a trade. Let's say you wanted to buy 100


July 1400 calls a few weeks ago when the market was lower. I know when you bought them you had tremendous conviction that they would make money. You pay 5 bucks.

But there are plenty of other people who think you are crazy, nuts and overpaying. Many of these people happen to be in the business of making markets. When you come in, they sell the calls to you. Depending upon how their "book" is set up, they may want to be long or short or have no exposure to the market. They might sell you the call and then take a number of courses. They could immediately buy a lower call, to hedge against an upside explosion. They could buy the next higher call to stop them out so they can only lose the cost between what they sold it for and what is the next strike. They could wait a little bit and then hope to buy back the call they sold on weakness.

Or, they might just try to ride the whole thing to zero. They might just bet against you. That's a huge rate of return for them if they win. Let's say they sold it to you for 5, and they did not take a hedging strategy. If the market didn't explode, they are very close to a big gain.

Today at some point, that call might be worth less than a dollar, say. The market makers are winning, you are losing. But they haven't won until the trade is booked. If the market suddenly ramps, they might be tempted to take their short off before it starts scaring them and going against them.

That's the squeeze I was talking about. At any given time there are enough market makers who stayed short that they might be panicked into buying these calls back at once. That's like pouring gasoline on a fire. That really makes the market shimmy.

But if the market doesn't pressure them, they will let the calls go out worthless. I watch these open-interest numbers -- which reveal how many calls might still be out there that haven't been closed -- like a hawk. When I saw 14,000 open interest on a higher strike when I came in this morning, I thought that represented a very big bet on the part of market makers against a ramp.

Too big.

If there had been 2000 or 3000, it would not have mattered. But when you see more than 10,000, that is a flag that a squeeze could occur. Too many people might have to cover at once if the market really started rolling to the upside.

Alas, it didn't happen. But it was on my radar screen and it was worth flashing you, so I did.

I will always be on the lookout for when these anomalies occur. And I will always share them with you. They are a necessary part of the road map you must have in order to make money in this market.

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at