Weekly Index Options – week of May 24, 2015

Commentary for week ending May 22

150522-ES-60The Fed FOMC minutes showed that few members favored an interest rate hike any time before the Fall, contradicted by the Fed Chair saying a rate hike this year is still likely. The issue seems to be economic data which is either too good to make a hike necessary or too bad to make a rate hike possible, depending on who is talking.

The CPI report Friday, showing inflation reaching an annual rate of 1.8% — not far from the Fed’s 2% target — would make a rate hike possible if not yet likely. Fed Chair Yellen’s speech called a rate hike this year “appropriate” given the economic data.

The ES reacted to this endless back-and-forth with a yawn. It made a narrow weekly range and closed with a small gain of 0.2%

The lack of interest benefited our option positions last week. Our trigger price was hit on Tuesday, Wednesday and Thursday, giving us three opportunities to enter, and the run up in price increased the premium we could collect. All of our Calls expired Out of The Money (OTM), and we kept the entire premium. We did not sell Puts last week.

Here are the option trades Nat suggested to her members for the week just ended:

Calls:

2110 is the option mean line this week. Calls with strikes from 2135 up to 2200 have been largely bought last week. If the price can break above 2135, ES could be pushed up to 2165-55. Our system shows that ES shouldn’t close above 2175 level this week; therefore, we look for selling calls at the strikes in the table if the ES rallies up to or near the 2130 level.

Puts:

Puts with strikes in the 2100-2090 strike price were heavily purchased last week. There is an air-pocket in the 2085 to 2055 zone. That indicates that as long as the index and ES stays above 2090-2100, the traders are expecting an upside movement. If there is a break below 2085, the index and the ES can free fall until the price reaches the 2055-45 zone. Our system shows that ES shouldn’t close below 2045 level this week. Therefore, we could look for selling puts if ES drops below 2095.

This week:

This is a short week with the Memorial Day holiday on Monday. It is also the end of month option expiration. The range from 2155 to 2090 will be the extension range for this week if ES breaks above or below last week’s range from 2134 to 2112 . See the weekly Market Preview for more detail.

Member content

Calls:

2115 is the option mean line this week. The 2175 Call was brought in the past weeks and should act as a ceiling for this week. ES could run up to 2150 area if there is a strong momentum run through the 2135 level on Tuesday. Our system shows that ES shouldn’t close above 2175 level this week, therefore, we look for selling Calls at the strikes in the table if ES rallies up to near 2130 level.

Puts:

The 2090 Puts were largely outstanding. That indicates that as long as the index and ES stays above 2090-2100 zone,the bias remains favorable to an upside movement and slows down any declining move. Our system shows that ES shouldn’t close below 2045 level this week. Therefore, we could look for selling Puts if ES drops to below the 2105 level.

Put/call volume ratio on ES May 29 option is 1:3 from 2200 to 2100 level, and 3:1 from 2090 to 2020 level.

Nat’s trades for this week

ExpirationStrike price Sell options when ES price is
May 29, 20152165, 2170, 2175 calls
2160 calls> = 2130
Meanline 2115
May 29, 20152080 puts< = 2105
2075, 2070, 2065 puts