Options – week of Sept. 8, 2015

Commentary for last week

Last week the SP500 mini futures (ES) tried to return to the breakdown level at 1993, the drop-off point for the crash to the August low 1831. It didn’t quite get there as concern about slow Chinese economic growth directly led the US market to slip back down for Friday’s closing.

The option tradding was lackluster last week. The price moved below Nat’s meanline early and stayed there all week. It never got near the trigger point for selling Calls, which was 2015.

However we got a good dip on decent volume Tuesday, and took the opportunity to sell some options with strikes below 1850. But there wasn’t any of the irrational exuberance that whipped the price back and forth the previous week. All our Puts expired out-of-the-money, so we kept the entire premium, but it was cold potatoes after the heavy action opf the previous two weeks.

Here’s the annotated chart: ESU5 on Sept. 4, 2015, 60-minute bars.

150904-ES-60

This week:

This is a short week due to the  Labor Day Holiday. ES could continue to stay under 1975-65 zone through the week. The short-term trend is clearly down, and this down trend may last for a while.

Member content

Here is the member content for this week.

Calls:

Call side has been well- bought above the 2000 strike price. The open interest for Calls expiring Friday with strikes above 2035 is relatively small. That indicates the 2035 level is our major resistance this week. Our system shows that ES shouldn’t close above 2050 level this week, which is very far away from the current price. If ES goes above the 2003 line we could see a big squeeze up. Otherwise ES should stay under 2000 for closing. Therefore we should look to sell Calls at the indicated strikes when ES moves above 1955 area.

Puts:

The Puts show heavy open interest for strikes below 2000. The open interest for strikes from  from 2000 to 1850 is far larger than for Calls. This indicates that the price can go lower if the 1940-50 zone holds the price down this week. But there is also a big risk of a squeeze up to below the 2000 line if the futures move above 1965 this week. However our system also shows a risk that the ES could close below 1800 this week. Therefore, we could look for selling Puts when the ES trades near or below 1900, but protect the trade by using a proper stop loss.

Nat’s trades this week

ExpirationStrike price Sell when ES price is
Sep. 11, 20152025 calls
2005 callsabove 1955
Meanline 1935
Sep. 11, 20151800 putsbelow 1900
1785- puts

Put/call volume ratio on SPX and ES Sept 11 option is 1:1 from 2100 to 1935 level, and 3:1 from 2000 to 1800 level.