Options – week of March 28, 2016

Last week

Week endingOpenHighLowClose
Mar. 18, 20162009.502042.751995.502038.75
Mar. 24, 2016 2036.502047.502012.252030.25

Commentary for last week

SP500 index had a minor pullback last week. It had the narrowest weekly range since the last week of November 2015. It showed the buyers were reluctant to jump on the buying side after several Fed members commented about a possible rate hike in April. 

Last week’s trades

160324-ES-60-options

ESM6 March 24, 2016. 60-minute bars

There were no option trades last week. It was a short week, with the Easter holiday on Friday, and the range for the week was the smallest in five months.

The price never reached Nat’s meanline (2050) and was generally negative until the end-of-the-week bounce carried it back almost to the open — a near doji, showing indecision.

There was no “irrational exuberance” we could capitalize on by charging excessive premiums for options, and we stayed on the sidelines.

This week:

Member content

Hi . Here is the member content for this week.

This week is first quarter re-balance week. SP500 index has three option expiration days (Mar.30, 31 and April) and ES has two expiration days (Mar. 31 and April 4). These multiple option expirations are likely to cause the price to go sideways with a relatively narrow weekly range.

Calls:

Above 2025 strike price, large volume of Call contracts show up at 2050 strike price. As long as index doesn’t go above 2075 level, those calls buyers are likely taking profit and cause the price to retrace. Our system shows that both index and ES shouldn’t close above 2095 level, therefore we look to sell Calls when price moves above 2040 level.

Puts:

Under 2000 strike price, 1975 strike price Put contracts are relatively larger than Call side. This hints the price may drop near that level if index fails to hold up 2000. Our system shows that index and ES shouldn’t close below 1945 level, therefore we look to sell Puts when the price goes below 2000.

Put/call volume ratio on SPX and ES April 1 option is 1:2 from 2100 to 2000 level, and 1.5:1 from 2000 to 1925 level.

Nat’s trades for this week

ExpirationStrike price Sell calls when ES price is
April 4, 20162085, 2095 callsabove 2040
2075 calls
Meanline 2025
April 4, 20161945 putsbelow 2000
1935, 1925 puts

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