Options – week of July 27, 2015

Commentary for last week

Last week the S&P500 mini-futures, the underlying security for the options we sell, opened high and stayed there most of the week. The futures dropped at the end of the week, but never got high enough to trigger our Calls trade.

The external events, especially the dump in the gold futures Sunday night (see the Gold Swing trades for details) ended up strengthening US dollar assets in the early part of the week, until disappointing earnings from some large-cap heavyweights drove the market down.

Last week’s trades called for selling Calls with strikes at 2165 or higher when the ES traded above 2135, and selling calls with strike prices at 2055 or lower when the ES traded below 2100. The trigger for the Calls was never reached, and we did not take that trade.

The trigger for the Puts trade was reached on Thursday and we sold Puts with strikes at 2055, but there was only 1 day before expiration and the premiums were low. The Puts expired OTM so the trade was profitable, but the profit was limited – a small win, but a win nonetheless, and our streak of profitable trades is intact.

Here’s the intraday chart for the ESU5 to July 24, 2015

150724-ESU5 60

So far we have not had a losing week since we started posting option trades in this format. That is consistent with our results during the test phase of our option trades, when we had only two losing trades over 52 weeks.

This week:

This is the last week of July and we’re expecting some end-of-month volatility. 2070-60 becomes a very important zone this week, and there are several external events that will move the ES around. The FOMC minutes will be released Wednesday, and the rising US dollar – as evidenced by the fall in gold and oil prices – will cause the Fed some aggravation. The continuing decline in the Chinese stock market and the heroic efforts to halt it will also affect us.

Member content

Here’s the member content for the week of July 27.

Calls:

2085 is the option mean line for this week. Above 2085 level, there is a heavy volume of calls outstanding at 2100 and 2125. which indicats those levels will be short-term resistance zones.  But the big wall should be any higher level from 2135 to 2165. Our system shows that ES shouldn’t close above 2150 level this week; therefore, we will look to sell Calls at those strike prices if the ES rallies above 2095.

Puts:

There were large open interests from 2060 to 2025 strikes for the Puts. That indicates ES could fall into 2050 or below if 2062.50 level fails to hold ES up this week. Our system shows that ES shouldn’t close below 2025 level this week. Therefore, we will look to sell Puts at those strikes if ES drops below 2055.

Put/call volume ratio on ES July 31 option is 1:4 from 2165 to 2085 level, and 4:1 from 2085 to 2000 level.

Nat’s option trades this week

ExpirationStrike price Sell options when ES price is
July 31, 20152165, 2170, 2175 Calls
2155 Calls> = 2095
Meanline 2085
July 31, 20152020 Puts< = 2055
2010, 2005 1995 Puts

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