IWO Trading Floor

Become a Great Options Trader

Proactive Spreads, September 5th 2017 - GLD, IBB

By

Markets had a very strong week to finish August. The key pivot level we were watching at 2465 was takeout and the market ran to test July's range.

Base case is still in play here. Simply put, the failure of sellers to come in to the market under 2425 indicates a "failed breakdown" setup, which means that this is a time-based correction with rotation underneath the surface and plenty of reversion.

Now there is the "problem" of North Korea. If you're reading any headlines, you're probably a little concerned. I've mentioned this previously, but all you need to do is follow the KOSPI VIX.

The KOSPI is the Korean stock market, and their VIX will let you know how much of a fearful reaction is taking place. The reading is at 16, which is still lower than the July spike. Anything above 20 would get me concerned.

Other than that it looks like we'll just see more "random walk" action into earnings season. Key pivot level now is 2450, the middle of the range and moving average cluster. If sellers take us under that, then maybe we will experience a deeper correction.

Trade #1: GLD

Last week Gold became very overbought and put in a reversal candlestick. Yet the next few days, it took out those reversal highs and stayed overbought. Fears from Korea and a technical breakout are really bringing in the buyers. I think that the resistance levels from last Fall will act as a magnet, and then sellers will come in to take profits. I want to fade at those levels.

Trade Setup

Expected Price: 128

Sell to Open GLD Oct 132/135 Call Spread

Tier 1: Enter at 0.42, Close at 0.12

Tier 2: Enter at 0.62, Close at 0.42

Tier 3: Enter at 0.82, Close at 0.62

Trade #2: IBB

Biotech had a massive run over the past few weeks, led by GILD. I started looking at plays in single stocks, but I think a sector bet will be a little safer as we head into earnings season.

I'm expecting these overbought signals to be resolved by a shallow pullback into previous resistance, now potential support.

Trade Setup

Expected Price: 328

Sell to Open IBB Oct 300/295 Put Spread

Tier 1: Enter at 0.60, Close at 0.10

Tier 2: Enter at 0.90, Close at 0.60

Tier 3: Enter at 1.20, Close at 0.90

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