Options – week of Oct. 19, 2015

Commentary for last week

Weekly prices – ESZ5
Week endingOpenHighLowClose
Oct. 162005.252026.501982.502026.25
Oct. 91941.002014.001937.252006.50

The SP500 mini (ESZ5) index had a follow-through week. Price not only broke the 50-day moving average line, also it closed near its 200-day moving average line on Friday. It indicates that 1831 is this year’s low

We made zero option trades last week. The price failed to reach the trigger (1975) for our Puts. The trigger for Calls (2025) was only reached on Friday.No irrational exuberance to take advantage of.

This week

The weekly range for the ES was relatively modest last week, only 44 points total, and price swings were relatively muted. The market continues to be obsessed by the Federal Reserve, with a minor glance at the Q# corporate earnings now being released. The earnings so far are mixed; nothing to cause a crash, nothing to spark a rally. The market is mainly following the existing momentum.

The Fed will make a policy statement Oct. 28 that will surely be the new focus of attention, although the consensus is no rate increase in 2015. In the absence of new rumors there isn’t much to push the market around with, so expect something to come up. War, economic upheaval and the Fed; bad news is good news now. Until it isn’t. Maybe a new QE is being planned?

Calls:

Calls above the 2035 strike price were largely bought last week. That indicates a key resistance line ahead of 2050-60 zone. The heavy call option contracts above 2035 could force ES Put buyers to cover and push the contract higher toward the resistance zone. Only a move below 2000 could cause a further decline in the futures. Our system shows that ES shouldn’t close above 2095 this week, so we are looking to sell Calls when the ES moves near the 2035 level.

Puts:

Puts above 2000 level were lightly purchased last week. This indicates heavy puts at 1975 and 1950 strike price could be the support line for this week. If the ES moves under 1950 level, it could shake out the weak Call buyers. Otherwise odds will continue to unload Puts. Our system shows that ES shouldn’t close below 1935 level; therefore we look to sell Puts while ES is below 1995 line.

Put/call volume ratio on SPX and ES Oct 23 option is 1:9 from 2085 to 2000 level, and 3:1 from 2000 to 1850 level.

Nat’s option trades for this week

ExpirationStrike price Sell when ES price is
Oct. 23, 20152095 calls
2065 callsAbove 2035
Meanline 2035
Oct. 23, 20151950 putsBelow 1995
1935 puts