Options – week of Aug. 10, 2015

Commentary for last week

Non-farm payrolls on Friday didn’t didn’t confirm or deny a Fed interest rate hike in September. All markets followed the oil price down and equities dropped further to close close to the close in the first week of July, which pretty well wipes out almost all of July’s gains.

Our option trades last week were all busted. The trigger for us to sell Calls was at 2110; the trigger to sell Puts was at 2060. Neither was hit. We got close to the Put entry on Friday afternoon, but by that time the premium was negligible.

The total range for the week was only 36 points, which is not enough to generate the kind of irrational exuberence that makes selling options profitable. We didn’t take any option trades last week.

Here’s the annotated chart.

150807-ES-60

ESU5 60-minute chart.

This week:

This week two Fed members will speak on Monday and Wednesday. Their remarks could result in some big price swings, which would give us better opportunities for profitable option trades..

Based on this week’s open interest:

  • Above 2100 there is a jam of outstanding Calls at 2135-45, which is likely to set a ceiling for the index and the ES;
  • Below 2075 there are large volumes of Puts at 2050 -2025 and again at 2005-2000.
  • There is a large area of empty space on the options ladder between 2095 and 2065.This indicates that as long as the price stays inside the 2100-2060 range, the SPX and ES are not likely to make a break-out move, but see the cautions about selling Puts below..

Member content

Here is the member content for the week ending Aug. 14, 2015.

Calls:

Our system shows that ES shouldn’t close above 2125 level this week even if the price breaks through the 2100 line. Therefore, we could look for selling Calls as indicated in the table if ES rallies above 2085 level.

Puts:

2055 is a control line for the ES. As long as ES holds above this control line, Puts with strike prices below 2050 become worthless. But if/when ES breaks down the 2050 level, it could cause a directional run and push the price far enough to make strikes from 2045-35 to 2005-10 expire in the money. Our system shows that ES shouldn’t close below 2000 level this week. Therefore, we could look to sell Puts at the strikes in the table if ES drops below 2055 level.

Put/call volume ratio on SPX and ES Aug. 14 option is 1:4 from 2150 to 2100 level, and 6:1 from 2095 to 2000 level. The differece in price between SPX to ES is 5 points.

Here are Nat’s option trades for the week

ExpirationStrike price Sell options when ES is
2130, 2135 calls
08/14/20152125 callsnear 2085
Meanline 2075
Aug. 14, 20152010 putsNear 2055
2005, 2000, 1995 puts

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