Options for May 4, 2015

Commentary for the week of April 27

150501-ES-60

ESM5 on May 1, 2015. 60-minute bars

ES sold off on the last day of April, but had a strong bounce on the first day of May. This back-to-back high volatility movement may be frustrating for futures traders but it works well for option sellers. It should be considered normal by option traders in the end and beginning of month.

Note the interjection of the Plunge Protection Team to halt the decline at Thursday’s low – about one-third of the day’s volume was thrown into the effort in the last hour of the day – and the continuing bounce on very light volume on Friday, when most of Europe was closed for May Day.

The price decline increased the premium we collected for the Puts, and the bounce meant  none of them were exercised. Hard not to like it. As often happens, the volatility increased the profit from the trades.

Last week’s trades

The Puts we sold with strikes below 2045 all expired worthless and the full premium was profit. The Calls we sold with a 2125 strike also expired worthless and all the premium we collected was profit. All of our option trades for the week of Apr. 27 made money.

This week:

This week should see a small pullback early in the week to anticipate Mrs. Yellen speaking on Wednesday morning and as a reaction to the bounce last Friday. The employment report on Friday, which is expiration day for the weekly options, may also move the market.

The ES continues within an extended congestion area with resistance at 2115-2120 (see the Weekly Preview). The minis may be able to break out through that level this week if the ESM5 holds above 2070.early in the week.

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