Options – week of Oct. 26, 2015

Last week

ESZ5 prices:

Week endingOpenHighLowClose
Oct. 232024.502074.502007.502065.00
Oct. 162015.352033.541993.732033.11

New European stimulus measures triggered buying programs on Thursday, On Friday China added more fuel by reducing interest rates, effectively devaluing its currency. All three major indexes ($INDU, SP500 and Nasdaq) closed above their mid-Sept high levels.

We sold Calls on Thursday, when the price moved above the trigger at 2035, and held them into the close. The strike price was 2065, which was the close for the week. The Calls were exercised and covered on the close, so we lost the commission on the transaction, but retained the premium we received for the Calls.

Here’s the annotated chart for the week.

151023-ES-60-options

This week:

Everyone will focus on the FOMC policy announcement on Wednesday and the Apple earnings report this week. The 100-point jump by the SP500 has already attacked many traders short on the 2025 level. If there is any pullback into the 2000 level the shorts covering could help to hold the price up.

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Here is the detailed option information for this week.

Calls:

There were lots of Calls bought last week. The 2060 strike price will be the meanline for this week. If the price shows any signs of declining, the heavy Call interest will slow the pace of the decline, unless the cash index or the ES goes under 1995. But beyond the 2075 level, it is possible for ES to move up slowly. Our system shows that ES shouldn’t close above 2110 level, therefore we look for short calls when ES moves near 2075 level.

Puts:

The Puts side below 1975 level still has lots of contracts open. This indicates those Put buyers are likely to cover their positions if the index stays above 2000 level, which could help to hold up the index, unless ES moves under 1950 level. That could trigger the index to resume the downside move. Our system shows that ES shouldn’t close below 1950 level, therefore we look for short the Puts while ES is below 1995 line.

Put/call volume ratio on SPX and ES Oct 30 option is 1:10 from 2125 to 2000 level, and 5:1 from 1995 to 1850 level.

Nat’s option trades this week

ExpirationStrike price Sell options when ES price is:
Oct. 30, 20152105 callsAbove 2075
2090 calls
Meanline 2060
Expiration1950 putsBelow 1995
1935 puts

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