Option trades – week of Nov. 14, 2016

Last week

Week endingOpenHighLowCloseVolume
(million)
Nov. 4, 20162120.002130.502078.752081.5011.6
Nov. 11, 20162106.002180.502028.502160.5017.1

Commentary for last week

The surprise result from the US election caused SP500 index to have a big swing in the overnight market, but it settled down in the regular hours. The index successfully held price above its long-term support line and punished every short into the end of the week. It had a 3.8% net weekly gain.

Last week’s trades

161111-es-60a

ESZ6 Nov. 11, 2016. 60-minute bars.

The wild swings in the US equity markets around the US election wreaked havoc with our option trades last week.

The ES was limit down on Tuesday night with the first suggestions of a Trump victory, but recovered all of those loses and more in the subsequent day session.

Our 2125 strike would have been deeply under water at the end of the week, although we covered for a modest loss when the price started rallying in overnight trading.

The 2165 Calls expired out-of-the money for a profit, but the 2150 Calls were in the money for a loss for the week, the first loss in months. The kind of volatility we saw last week is dangerous to option sellers, and there may be more in store. Be cautious.

This week:

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Hi . Here are the option trades for this week.

With the US election is behind us it should be back to normal business. This week is the major November option expiration week. The index has two weekly option expirations (Nov. 14 and 16) and one major monthly option expiration on Nov. 17. ES has two option expiration days on Nov. 16 and 18. The 2160-2140 zone becomes this week’s option consolidation zone. The battlefield for both sides will be to see who can take a control of it. If it holds above this zone, the index could go up to 2200-35 zone; if it fails to hold it could lead the index back down to the 2100-2075 zone.

Calls:

Above the 2165 strike price, Calls at 2200 and above toward 2250 strikes were bought. As long as the index holds above the 2160-40 zone, the price could continue to rally until the buyers get exhausted. Our system shows that index and ES shouldn’t close above 2250 level, but be cautious about selling Calls this week. Watch the price action carefully before you enter and be prepared to exit your position if necessary. There is a risk of a strong rally moving further than expected. We are not setting a trigger level for Calls this week.

Puts:

Under the 2130 strike price, Puts at 2120 and 2100 towards 2050 strikes were bought heavily last week. The 2100 level will become a very important line for this week. A move below it could lead the index to squeeze the buyers sending the price down sharply go down and then reverse from a lower level. Our system shows that index and ES shouldn’t close below 2050; therefore we look to sell Puts when ES goes below 2100 area.

Put/call volume ratio on SPX and ES Nov. 18 option is 1:4 from 2250 to 2135 level, and 8:1 from 2130 to 2000 level.

Nat’s option trades for this week

ExpirationStrike price Sell options when ES price is ...
Nov. 18, 20162235, 2250 calls
2225 calls
Meanline 2160-2140
Nov. 18, 20162075 putsBelow 2100
2050 , 2010 puts