Options – week of Sept. 14, 2015

Commentary for last week

Last week was a short week due to the Labor Day Holiday. The cash index (SPX) gapped strongly at open and managed to hold above the gap for the close on Froday. Even though there was some weakness shown, the price did not break down the 1930 support line, which still was encouraging for buyers.

150911-ESU5-60

ESU5 (September contract) 60-minute bars

The Rollover from the September to the December contract caused a little confusion, as usual. We are trading the ES December contract this week, but will continue trading options on the September contract until they expire Friday.

Note that the cash index and the September contract are converging in price; by expiration the prices will be identical.

The trading last week was relatively quiet. The price mainly seesawed back and forth across the key line at 1950 (ESU5). We were using 1955 as the entry level for shorting Calls, and we got a nice little run up that filled some traders with optimism and made them willing to pay higher premiums for our Calls.

But at the end of the week they expired out-of-the-money and we retained the entire premium. Not a big winner, but steady.

This week

There will be a lot of action this week. It is quadruple witching, when contracts, options, and stock options all expire. We also have the FOMC  meeting on Wednesday and an announcement of some kind about interest rate increases at 2pm on Thursday. Shortly after the Fed Chair’s press conference Thursday afternoon the options on the SP 500 cash index will expire. The next morning the September futures contract and its options will also expire. There will be a lot of jostling for room at the table, and the volatility will be high.

Member content

Here is the member content for the week of Sept. 14.

The combination of quad witching week and the Fed FOMC meeting will provide lots of opportunities for manipulators to run the stops in both directions, and the effect is likely to be wide swings and sudden reversals. If you are trading options this week keep a close eye of your position, Anything can happen this week, and it is easy to get hurt in this kind of market. Be cautious.

Calls:

For the September contract the open interest for both Calls and Puts is heavy (and almost identical) around the 2000 strike. On the Call side there are no big contracts moving at 2035. That indicates the SP 500 index could move up to the 2035 level if the price breaks through 2005. Our system shows there is a chance for ES (September) to move above 2025-60 zone if a breakout occurs. But the market still should not close above 2060 for this week.

(There is another possibility: if ES goes below 1992,  the price could whipsaw inside a broad range around the 1965 battle line. In this case the market needs to close above 1975 to avoid more declines in the coming week).

Puts:

Put side also has heavy open interest at the 2000 strike price. It indicates the market could move up on the strength of Put covering if the index breaks above 2005. Otherwise, the cash index needs to stay under 1993 line to continue fighting for the 1965 zone. The price can go back down if the price can not move above 1995-85.

But as long as the index stays above 1925, the price can careen back and forth with great volatility. Our system shows that ES shouldn’t close below 1850 level this week.

Put/call volume ratio on SPX and ES Sept 18 option is 1:1 from 2100 to 1935 level, and 1:1 from 2000 to 1850 level.

Nat’s trades this week

ExpirationStrike price Sell when ESU5 is
Sept. 18, 20152025 calls
09/18/20152005 callsabove 1970
Meanline 1965
Sept. 18, 20151875 putsbelow 1930
1850- puts