Wednesday had a very interesting trade structure.
After making a new high early in the morning and achieving balance, the FOMC minutes came out.
Now the Fed minutes aren’t a big deal anymore. They get projected pretty well… the difference was a suggestion that they could unwind their balance sheet earlier than expected.
That was enough to compel sellers to step in and the momentum built on itself. It was the second largest intraday reversal this year.
Base case right now still remains reversion. The main pivot level I’m watching is 2350– the longer we hold above that level the higher the odds of a retest of recent highs. A close above 2370 would confirm it.
A further pullback target is 2300. Which really isn’t much but the financial media will signal that it’s the end of western finance and volatility will pick up– which is good for us!
Trade #1: AMZN
AMZN is an absolute freight train of a stock. The past few days feel like institutional money forcing their way into the stock in a price-insensitive nature… meaning that they want to buy at any price.
This cannot persist, and I expect the stock to see some reversion soon. It’s up 7% over a 10 day period, which is elevated when it’s not after a selloff or earnings. It’s also 7% above the 50 day moving average, which is overbought when you don’t consider earnings.
Now there is earnings risk in this spread. Because we’re selling call spreads you should be able to get in and out pretty quickly, and odds are any good news on earnings is starting to get efficiently priced in with this price movement.
Expected Price: 920
Sell to Open AMZN May 980/985 Call Spread
Tier 1: Enter at 1.00, Exit at 0.50
Tier 2: Enter at 1.50, Exit at 1.00
No Tier 3
Stop out on close above 980
Trade #2: LULU
The stock was smashed after earnings, clearing the past year’s range with ease. I was waiting for a lower low, and we just got it so I want to scale into some put spread sales.
Expected Price: 48.50
Sell to Open LULU May 45/42.50 Put Spread
Tier 1: Enter at 0.30, Exit at 0.10
Tier 2: Enter at 0.45, Exit at 0.30
Tier 3: Enter at 0.60, Exit at 0.45
Trade #3: TSLA
TSLA broke out to new highs, and then Elon Musk tweeted something about how the shorts are getting punished.
One thing I know is that YOU DO NOT TEMPT THE MARKET GODS.
I expect the initial breakout to fail, get the momentum buyers stopped out and for strong hands to take hold again. Just above the gap fill at 270 is where I’m looking.
Now if it just keeps ripping higher I’ll consider a short but we’re nowhere near prices I’ll consider for that. The last time I took a short on TSLA was back when it was trading at 235 and it took nearly a month for the trade to stop getting squeezed… be patient if you want to fade.
Expected Price: 275
Sell to Open TSLA May 240/235 Put Spread
Tier 1: Enter at 0.90, Exit at 0.30
Tier 2: Enter at 1.30, Exit at 0.90
Tier 3: Enter at 1.70, Exit at 1.30
If needed, we will roll to June Options.