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Full Time Profits, January 23rd 2017

January 23, 2017 By Steven Place

spx-1-23-17

Another week, another round of volatility compression.

Eventually, this has to give. Markets rarely stay this quiet for this long. If you’re looking for a catalyst, well, we’re headed hot into earnings season. We’ve already seen large cap financials get taken down a peg as the expectations baked into the stock were too great.

Since this is a “market of stocks,” it could simply be that a handful of the bellweather names will dictate direction in the near term. So if stocks like AAPL and GOOGL manage to hold tech afloat, then everything else will get pulled along.

Earnings season will also give us much better setups on individual stocks. Volatlity is our friend here.

Trade Setup #1: TLT

tlt-1-23-17

When TLT has a move like this to the downside, it’s very rare for it to be a “one off” event. Unlike stocks that get bid up on any sign of weakness, it’s possible (and probable) that the low will be retested, and most likely broken.

What we are looking for here is a new marginal low in Treasuries, with a momentum divergence. This simply means that we sell off, but the psychology of sellers has shifted from outright fear to exhaustion. Into 115, which is the next large support level, is where I want to get involved.

Trade Setup

Expected Price: 115

Sell to Open TLT Mar 110/107 Put Spread

Tier 1: Open at 0.50, Close at 0.10

Tier 2: Open at 0.70, Close at 0.40

Tier 3: Open at 1.00, Close at 0.70

Trade #2: SWKS

swks

This is an earnings catalyst play.

We have the combination of two things. First, the fundamentals are solid. The company had a “beat/beat/raise” event, where they beat on revenue and earnings, while raising forward guidance.

Second, we have a clear technical breakout from a multimonth base. While there are some resistance levels to contend with in the 90’s, it’s a very high odds trade that SWKS does not fill this gap anytime soon.

This will be a slightly different setup. First, because March options opened yet, I don’t yet know the actual pricing for the spreads. I’m using theoretical pricing to figure out the expected value of the spreads. Second, this will have a stop baked into the trade.

Trade Setup

Expected Price: 88

Sell to Open SWKS Mar 80/75 Put Spread

Tier 1: Open at .90, Close at 0.20

Tier 2: Open at 1.20, Close at 0.90

No Tier 3

Extra Risk Management: On a close under 78.18, exit the trade for a loss.

REMEMBER: These prices are not yet confirmed by the market. Look to see how it plays out on Monday and make a decision from there.

Disclaimer

U.S. GOVERNMENT REQUIRED DISCLAIMER – COMMODITY FUTURES TRADING COMMISSION. FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS. DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS WEBSITE IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED ON THIS WEBSITE. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY, SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN

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