Options – week of July 13, 2015

Commentary for last week

Last week the SP500 index experienced maximum frustration from Greece to China, and from China back to Greece. Price went down sharply at the beginning of the week and bounced sharply at the end of the week to close almost unchanged. The external drama brought high volatility to traders.

The intraday chart for last week is a study in whipaws. The market gapped down over the weekend when the Greek referendum produced a No! vote, then bounced back and forth between the short-term resistance around 2075 and the long-term support around 2035.

Subsequent events — including the alleged computer “glitch” that shut the NYSE for three-and-a-half hours and the continuing melt-down in the Chinese stock market — added to the volatility as the week wore on.

Despite — or perhaps because of — the extreme volatility, our option trades were all profitable last week. Each time the price dipped below our trigger point at 2050, the premium paid for Puts soared. We typically sell weekly options, and there were many opportunities to sell at good prices throughout the week. By the close on Friday all of the Puts (with strikes at or below 2010) expired OTM and we retained all of the premium.

The trigger for selling Calls was not reached, and we stood aside from that market last week.

Here’s the annotated intraday chart. You can see the member content for last week here.

1507010-ESU5-60

ESU5 intraday chart for Weekly Options

This week:

This week will see same high volatility. First the market volatility index option will expire on Tuesday and SP500 index option will expire on Thursday and ES July option will expire on Friday. This week there is also a heavy schedule of economic reports, plus earnings releases for Q2, and there will certainly be some kind of external event to shock the market.

Prices will be thrashing around. In addition, the Fed will be active; the Chair is giving two speeches, on Wednesday and Thursday. The market will be paying close attention, and probably reacting. This will be no week for the faint-hearted.

 Member content

 Here is the member content for the week of July 13, 2015.

Calls:

2075 is the option mean line for this week. Above 2100 level, there are heavy volume of calls outstanding at 2120 to 2150. Our system shows that ES shouldn’t close above 2150 level this week, therefore, we could look for selling above strike price calls if ES rallies above 2095 level.

Puts:

Below 2075 strik price put, there were large open interests at 2050, 2025 and 2000 level. These level could slow down the selling but it also could trigger a strong downside movement if each level fails to hold up. Our system shows that ES shouldn’t close below 2000 level this week. Therefore, we could look for selling puts if ES drops below 2050 level.

Put/call volume ratio on ES July 17 option is 1:2 from 2200 to 2040 level, and 3:1 from 2040 to 1990 level.

Nat’s option trades for next week

ExpirationStrike price Sell options when ES price is
2130,2145, 2155 calls
July 17, 20152125 calls> = 2095
Meanline 2075
July 17, 20152010 puts< = 2050
2000, 1985 puts

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