Options – week of May 11, 2015

Commentary for week ending May 8, 2015


ESM5 to May 8, 2015. 60-minute bars

As predicted, ES did sell off in the first part of last week. But the sell-off was overdone and caused the option meanline – the strike price where Puts and Calls are roughly in balance – to drop down to 2075, which trapped lots of bears below 2070. Later ES rallied after the Non-Farm Payroll report was released and the option meanline switched back to the 2100 level again. Lots of scrambling for the players.

Trades last week

The ES price did not reach our trigger for selling calls, so no trades were taken. After the ES dropped below 2090 we sold weekly Puts at the 2025, 2035 and 2045 strikes. All expired out of the money and we retained 100% of the premium as our profit.

This week:

So far the Fed hasn’t done or said anything to indicate it intends to delay an interest rate hike. However the Street and the media are acting as if a delay is a sure thing, and are pricing in no rate hike in June. We’ll see. Meanwhile, based on the option volume, the 2135 to 2075 range continues to constrain the ES. Traders in both the index and the options are watching for a break-out – possibly in either direction – with a clear confirmation.

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2100 remains the option mean line this week. Calls with strikes from 2120 up to 2150 have been largely bought last week. If the ES can break above 2125 level, the price could be pushed up to 2145-50. Our system shows that ES shouldn’t close above 2175 level this week; therefore, we could look for selling Calls with the strike prices in the table if ES rallies to or near the 2125 level.


Most of Puts purchased last week were below the 2090 strike price. A move below 2090 level could push ES down toward 2080-70 for testing. 2060 should be the support level for this week. Our system shows that ES shouldn’t close below 2030 level this week. Therefore, we could look for selling puts if ES drops to or below the 2090 level.

Put/call volume ratio on ES May 15 option is 1:3 from 2175 to 2095 level, and 2:1 from 2090 to 2030 level.

Nat’s option trades this week

ExpirationStrike price Sell when the ES price is
Fri. May 15 2155, 2165, 2170 calls
2150 calls> = 2125
Meanline 2100
Fri. May 152045 puts< = 2090
2035, 2025 puts

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