Commentary for last week
ESM5 69-minute chart
The US stock market extended its weekly losses following a better than expected U.S jobs report for May. Fear of a June rate hike continues to haunt investors, in addition to the Greek debt payment issue overseas. ES lost 13.75 points in total for the week.
All of our options trades last week were profitable. We sold Calls with strikes above 2155 when the ESM5 traded above our trigger at 2125, and sold Puts with strikes below 2050 when the ESM5 traded below 2095. All of the options expired OTM and we retained the entire premium.
Hedged weekly option trades
In addition to the regular weekly option position trade, Nat made an overnight trade in the Thursday Globex session in anticipation of increased volatility on Friday, when the Non-Farm Payroll numbers were released. For each position she sold one ESM5 contract at 1198.75, and sold one 2095 strike Put at $7.25.
In effect this was a partially-hedged directional trade. She was expecting a close below 2100 Friday afternoon. If Friday closed above 1199, the premium collected from the sale of the Put would help offset any loss on the contract. It Friday closed below 2095, the gain on the contract would offset the loss on the Put. If Friday closed between 2095 and 2098.50 she would make money on both the Put and the contract.
The only risk of loss would occur if the ESM5 closed Friday above 2106 (1198.75+ 7.25)
In the event the ESM5 closed Friday at 2092. Her Put was exercised 3 points below the strike, so she retained $4.25 of the premium, and made 6.75 points when she covered the contract, The net after expenses was a little less than $550 per position, which is a nice return for an overnight trade.
This week
This week we are expecting a continuation of the selling after a brief bounce. External negotiations between the IMF and Greece will continue to agitate the market, and the Non-farm Payroll on Friday was good enough to re-ignite fears about a Fed rate increase, possibly this month.
Check the weekly Market Preview when it is published Sunday evening for more details about Nat’s outlook for the week ahead. You can see the details of last week’s option trades here.
Members can see details of next week’s option trades below.
Member content
Here are Nat’s option calls for the week of June 8.
Calls:
2095 is the option mean line this week. Calls with strikes above 2125 had large open interest volume last week, and indicate that line should act a ceiling for this week. ES could run up to 2120 area if there is a strong momentum run through 2107 level. Our system shows that ES shouldn’t close above 2135 level this week, therefore, we could look for selling Calls at the strike prices in the table if ES rallies up to near the 2100 level.
Puts:
Puts with strikes below 2100 were also largely bought. That indicates that many people still think the market will go down further, but it also indicates there are lots of hedge activities going on from institutional traders. Our system shows that ES shouldn’t close below 2030 level this week. Therefore, we could look for selling Puts at the strikes in the Table below if ES drops below the 2085 level.
Put/call volume ratio on ES June 12 option is 1:2 from 2150 to 2100 level, and 4:1 from 2095 to 2010 level.
Option trades Nat is taking this week
| Expiration | Strike price | Sell optons when ES price is: |
|---|---|---|
| June 12, 2015 | 2135, 2145, 2155 Calls | |
| 2125 Calls | > = 2100 | |
| Meanline | 2095 | |
| June 12, 2015 | 2025 Puts | < = 2085 |
| 2010, 2005, 2000 Puts |