Markets continue to chop around in the range established from last month. Because the overall trend is up, we need to assume that when volatility expansion does occur it will be higher.
The trade has certainly been rotational in nature. We’ve seen some heavy selling hit the oil sector, while healthcare and tech help to buoy the market. And from the look of it… everything else has been in a super tight holding pattern since December. XLF (financials) is a great example of that.
I personally would prefer a little more vol to come in the market. I’d like to see some stop runs, and some shakeouts as it makes my trades a lot easier to execute. But we don’t yet have evidence that this will come into play.
Trade #1: CVX
The stock broke down in the short term and looks ready to test some levels not seen since late last year. We have an inclining 50 day moving average, as well as key pivot levels at 110 and 106.
Trade Setup
Expected Price: 112.50
Sell to Open CVX Mar 105/100 Put Spread
Tier 1: Enter at 0.70, exit at 0.20
Tier 2: Enter at 1.00, exit at 0.70
Tier 3: Enter at 1.30, exit at 1.00
Trade #2: IBM
This one will be a little more copmlex to understand…
See, IBM has earnings next week, and it’s starting to look a little weak. I think that you could sell put spreads into the 162.50 level, but check out this chart:
IBM has a very, very strong tendency to head lower after earnings. So I want to play put spread sales after earnings if we manage to see a decent gap lower.
Because we don’t know exactly how IBM will trade post earnings, figuring out expected prices will be a little more complicated.
Trade Setup
Expected Price: Low 160’s… wait for after earnings
Sell to Open IBM Mar 150/145 Put Spread
Tier 1: Enter at 0.70, exit at 0.20
Tier 2: Enter at 1.00, exit at 0.70
Tier 3: Enter at 1.30, exit at 1.00