Option trades – week of Dec. 19, 2016

Last week

Week endingOpenHighLowCloseVolume
(million)
Dec. 9, 20162184.002255.752179.002255.758.7
Dec. 16, 20162255.252273.002243.002255.7510.2

Commentary for last week

The S&P500 index took a small breather after the Fed rate announcement Wednesday, but quickly found support at the 2245 area and managed to hold up 2250 for closing. The price action showed a consolidation move for the week, and gave a small reversal sign on the weekly chart.

This week:

This is the pre-holiday week. The favorable seasonality may hold the index up to the end of year. But the option activity may decrease together with the declining volume in equity markets. The SP500 index could keep holding above the 2240-30 zone this week. But pre-holiday selling for profit taking still should be expected, in part because of the short-term extremely overbought condition.

Calls:

Above 2270 strike price, last week most Call contracts were bought at 2285 to 2300 strike price levels. As long as the index holds above 2250, it will struggle to push price up towards the 2280, 2290 and 2300 levels. Our system shows that the index and the ES shouldn’t close above 2315 level; therefore, the traders should sell Calls when ES moves above 2275 or higher.

Puts:

Below the 2270 strike price, Puts bought between the 2270 and 2200 strikes were roughly equal to Calls purchased at those strikes. That means the index and ES could stay inside this zone (2270-2200) if the index pulls back from 2275. A move below 2200 could cause the price to fall further. Our system shows that index and ES shouldn’t close below 2190 level, but we can’t rule out the possibility of a free fall if the market breaks in a period of heightened volatility. We suggest buying (not selling) January monthly Puts if you want to trade the short side of the market.

Put/call volume ratio on SPX and ES Dec. 23 option is 1:5 from 2270 to 2315 level, 1:1 from 2270 to 2200, and 5:1 from 2195 to 2100 level.

Nat’s option trades this week

ExpirationStrike price Sell options when ES price is
Dec. 23, 20162325, 2335 callsAbove 2275
2315 calls
Meanline 2270
Dec. 23, 20162190 putsnone
2185 , 2175 puts