Option trades – week of Sept. 12, 2016

Last week

Week endingOpenHighLowCloseVolume
(million)
Sept. 2, 20162167.752183.752154.752179.258.96
Sept. 9, 20162179.252189.252113.252114.506.5

Commentary for last week

SP500 index sold off last Friday, a reaction to two distinct conditions. One was the long-term overbought condition; the second was an over-reaction to news North Korea was conducting nuclear tests. Even though it is an overreaction, it confirmed the short-term top was in.

Last week’s trades

120909-es-60a

ES futures, continuous contract.Sept.9, 2016

It was an unusual week for option traders, with a long, languorous run up to frenzied trading on Friday, but few really good profit opportunities.

Last week was the Labor Day holiday and Rollover week, when futures traders switch to the next nearest contract, in the case of S&P MINIs, the December contract, ESZ6.

The market sleep-walked through the first part of the week with prices close to the all-time highs. Many traders were clearing positions in the September contract but not entering new positions in the December contract.

They may do that early this week, as we approach the September expiration and quadruple witching week..

For option traders, the result was little interest and low prices for our Call options, followed by frenzied trading in the Puts as the market dumped about 60+ points on Friday.

It was possible to scalp Puts on the way down, and the settlement was just a couple of ticks in the money for Nat’s 1st strike price, but only dedicated day traders (and relatively few of them) managed to make money from Friday’s action..

This week:

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Hi . Here are the option trades for this week

This is Quad witching week, when options and underlying futures contracts expire.

The index has three option expirations this week (Sept 13, 14 and 15). Both ES futures and option contracts will expire on Sept. 16. Quadruple witch expiration week could drag the price down further or rise sharply in order to squeeze premium on both Calls and Puts.

Calls:

Above the 2115 strike price, most Call contracts bought were shown on at 2150 and 2175-80 levels. The Index could struggle to move up there if 2115 line holds up successfully in the early week. But any sharp rally may countered by sellers. Our system shows that theIndex and the ES shouldn’t close above 2195 level this week; therefore we look to sell Calls when the index or ES price moves into the 2160 area.

Puts:

Below the 2155 strike price, the 2150-2100 zone strike Puts were bought heavily last week. As long as Index stays below 2155 line, sellers will keep pushing the price to lower. If index breaks below 2097 , the selling stops below this level could be triggered and push the price lower toward the 2075-65 zone. Our system shows that index and ES shouldn’t close below 2055 level this week; therefore we look to sell Puts when the price goes below 2100 area.

Put/call volume ratio on SPX and ES Sept. 16 option is 1:1 from 2185 to 2115 level, and 5:1 from 2115 to 2000 level.

Nat’s trades this week

ExpirationStrike price Sell options when ES/Index price is
Sept. 16, 20162200, 2205 Callsaround 2160
2195 Calls
Meanline 2115
Sept. 16, 20162055 Putsaround 2100
2045 , 2025 Puts