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Proactive Spreads, May 1st 2017 – GOOGL, CAT

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Last week, the market became a bit overbought. We ran into the upper Bollinger band (not shown) and the Nasdaq blasted off to new highs on the back of good earnings reports.

Instead of correcting through price, the S&P 500 is correcting through time, consolidating gains and we’re seeing sector rotation underneath the surface. This is healthy market action, and as long as the market holds above 2370 (blue line) we need to expect the trend to continue.

Trade #1: GOOGL

This is a post earnings announcement drift (PEAD) trade.

The stock had a good earnings report, and a good reaction into new highs. The normal action for this stock is for it to “drift” sideways and higher over the intermediate term.

Trade Setup

Expected Price: 930

Sell To Open GOOGL Jun 890/885 Put Spread

Tier 1: Open at 0.80, Close at 0.20

Tier 2: Open at 1.30, Close at 0.80

Tier 3: Will Roll Tiers 1 and 2 down and out if needed

Trade #2: CAT

CAT is a similar PEAD trade, but has already retraced a little into the gap. Looking for these levels to hold as new support is established post earnings.

Trade Setup

Expected Price: 101

Sell To Open CAT Jun 97.50/95 Put Spread

Tier 1: Open at 0.48, Close at 0.15

Tier 2: Open at 0.75, close at 0.50

Tier 3: Roll spreads down and out if 98 is tested.

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