Weekly index options – week of June 29, 2015

Commentary for last week

It was a strange week. ES ran up first and dropped down later in response to the continuing drama in Greece. In addition mixed US economic data also cooled down the buyers.

All of that was good news for our option trades. We were able to sell weekly options with strikes =>2130 at good premiums early in the week. All of our trades were profitable; all of the options expired worthless on Friday. The trigger for our Put trades was never hit.

Here’s the annotated chart of the ESU5 showing the triggers and strike prices from last week.See last week’s option post for the details of the trades

150626-ES-60

This week

There is a lot to worry about this week:

  • Greek banks will be shut all week, the government is discussing capital controls, the Eurozone has cut off liquidity to Greek banks, and the Greek stock Market will not open on Monday. There will be impacts on the forex markets, in bonds, and in our index options.
  • China has cut interest rates after the Shanghai stock market (and most other Chinese markets) continued to slide. Shanghai is down almost 20% from the recent high June 12, but despite the loss is still up 30% for the year. Traders are starting to fear the balloon could burst any moment.
  • This is a short week for US equity markets, with the July 4 holiday being celebrated on Friday. It is also the end of the month, and there will be two option expirations this week; the June monthly option expiring on Tuesday, and the regular weekly option expiring Thursday.

There is going to be a lot of turbulence in the markets, especially Monday and Tuesday, and the price action will be choppy. So far overnight markets are still not open and we don’t know how traders are going to react. One possible reaction is a flight to safety in US markets and the USD, but we don’t know if that will happen.

However we can be fairly certain that there will be extreme price fluctuations, and our option trades are going to be affected by it. Be cautious this week, and watch your trades closely.

Member content

Here is the option preview for the week of June 29, 2015. 

Calls:

2105 is the option mean line for both option expiration days. For the monthly close price, our system expects the monthly closing price will not exceed 2150. But for weekly option on Thursday, our system shows that ES shouldn’t close above 2175 level this week. Therefore, we could look for selling Calls at the strikes in the table if ES rallies up to near the 2110 level.

Puts:

For Puts below the 2085 strike price, there were large open interests at 2075-2050 zone on both option expiration days. That zone could hold ES up, but also could cause the price to drop fast and bounce fast this week. Our system shows that ES shouldn’t close below 2025 level this week. Therefore, we could look for selling Puts at the strikes in the table if ES drops below 2085 level.

Put/call volume ratio on ES June 30 and July 2 option is 1:2 from 2175 to 2095 level, and 2:1 from 2075 to 2000 level.

Nat’s option trades this week

ExpirationStrike price Sell when ES price is
June 30 or
July 2
2155,2160,2165 Calls
2150 Calls> = 2110
Meanline 2105
June 30 or
July 2
2025 Puts< = 2085
2005, 2000 Puts

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