So far, current price action is a small correction in the context of an intermediate term rally.
The S&P 500 had an exhaustion gap and spent nealry a week pulling back as the 20 day moving average caught up. Key levels were held and other than a few signs of weakness in oil and high yield debt, there really hasn’t been much in terms of true signs of a deeper correction.
The Fed came out on Wednesday and did their rate hike. This was expected, anticipated, and a little bit priced in. Fed fund futures were at a 95% chance of this happening, so nobody should be shocked.
We’re now coming into a point where I feel like new trades are going to be a little more “forced.” After all, spread selling works best when volatility is running hot, and we’re in a market where vol just isn’t there. Many stocks have undergone time-based corrections rather than finding any sellers.
To compensate for this, I’m going to do a few things. First, I will go after spreads that have a higher credit. Second, I will use price-based stops. Third, I will not have a tier 3 on the trade. These modifications will still allow participation in this market without having a ton of risk out there.
Trade #1: AMZN
The stock has been compressing near its all time highs. The chance for it to have a deeper pullback is probably over without it running first.
Expected Price: 854
Sell To Open AMZN May 810/805 Put Spread
Tier 1: Enter at 1.25, Exit at 0.55
Tier 2: Enter at 1.65, Exit at 1.25