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Proactive Spreads, October 9th 2017 – RUT, WYNN

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Markets are running short term overbought right here… but I’m not sure that matters too much.

The past 2 weeks have been a relentless bid up in stocks. This is institutional money, and it is price-insensitive. The “why” behind it doesn’t matter that much, but my thoughts here is that the market is attempting to price in earnings before they happen.

So if we’re overbought, we should expect a correction, right? Possibly, but remmber we can correct through time– markets can go sideways while there is rotation underneath the surface. Trust me, I’d love a pickup in volatility and deeper pullbacks but we just haven’t seen it this year.

Earnings season is coming up — make sure you have the dates on your calendar and avoid adding on full size into an event.

Trade #1: RUT

Smallcap stocks have seen a massive run and are due for a pullback. I’m looking for a move into the 20 day moving average, which will be just above 1480 in the next few days.

Trade Setup

Expected Price: 1480

Sell to Open RUT Nov 1400/1390 Put Spread (10 wide spread)

Tier 1: Enter at 1.10, Exit at 0.20

Tier 2: Enter at 1.60, Exit at 0.60

Tier 3: Enter at 2.10, Exit at 1.60

Trade #2: WYNN

We may have already missed this one, but let’s put it out there just in case.

For a little context, WYNN is a casino that has operations in Macau. China continues to make up for a large amount of earnings growth, so those Macau numbers are closely watched.

There’s a holiday season for China and so investors are watching tourism numbers into Macau for this “golden week.” So far they appear light, which is the current short term catalyst for the stock.

Right now it sold off hard into the 50 day moving average and bounced, but if it sees weakness again then it will crack that level and head back into the range from the last few months. Playing that range will be a good bet so sell put spreads into that level.

Trade Setup

Expected Price: 140

Sell to Open WYNN Nov 125/120 Put Spread 

Tier 1: Enter at 0.65, Exit at 0.15

Tier 2: Enter at 0.95, Exit at 0.40

No Tier 3 Until After Earnings

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