Option Rollover Day

Volume shifts from the September 2015 to December 2015 futures option contracts today with a difference of –9.25 points from ESU15 (September) to ESZ15 (December).

All previous chart numbers have been adjusted to reflect the new contract pricing—so, for example, the intermediate-term primary trend line from the expiring September contract at 2034.25 now becomes 2025, and so forth.

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Screen Shot 2015-09-10 at 9.25.42 AM

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So far this is going as expected considering the thesis put forth in my last post that the pros intentionally took this market down for three straight trading days (8/21, 8/22, and 8/24) with the express intent of sweeping all bull stops above the long-term primary trend line at 1781.75

The volatility premium for writing options was huge during the takedown and guess who likely wrote the majority of those options sold during that event?  That’s right, the same folks who intentionally took the market down.  If they were long puts and short stocks going into the takedown then it makes sense that they would have covered once those stops were swept and then start selling premium in the panic.  If so, then it also makes sense that the market has been parked and continues hovering around the void line at 1937 as they run out the clock on the premium for the options they sold.  Today is rollover day and expiration is next week so we’ll see how this goes but it helps to understand why they do the things they do–because the average retail trader out there is likely totally lost and confused at this point.

If they continue to constrict volatility between now and expiration next week–we could see the reverse of the August expiration setup where the pros choked volatility and then scooped up as many crash puts as they could ahead of the takedown.  It’s still a little early to predict that, but if the paradigm continues and this was just an engineered takedown–that is what I would do if I were pulling the levers.

The volatility strangulation zone is currently between 1983.50 and 1889.50.  Sometimes I laugh out loud at the brazenness of these characters and that was the case when they stopped the rally just short of setting a new lower ST pivot high.  If they are trying to keep the bears engaged as long as possible before a moonshot–that’s how you do it.  Right now, the ST trading range is huge (2094.50 to 1821.75).  If they were to set a new lower high the technical stops would move down–as it is, most bears are likely trailing fairly loose stops so just keep that in mind.

The short-term and intermediate trends are down under 2037.25 and 2025 respectively so the bears technically have the advantage below those lines –but keep an eye on the pros here when it eventually breaks out of this volatility strangulation zone between 1983.50 and 1889.50.  The paradigm that has been in place since 2009 suggests that they may be planning to head back up –but 1821.75 would be their hard deck on that potential trade, with a potential accumulation zone between that number and 1937-ish.

Heads up between now and next week’s expiration…

…my .02

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