Markets started Monday with a strong gap higher. The S&P is spitting distance from 2700 and there is no evidence of weakness in sight.
The primary strategies we use at Proactive Spreads focuses on mean reversion. That means we look to buy dips in quality stocks that are in uptrends.
Over the past month, it has been especially difficult to find those setups. You can either force your way into a stock, or wait on the sidelines.
Now a few weeks ago we did get a nice gift in a pullback in tech... but other than that we've been sitting, waiting for sellers to show up in stocks.
You may ask yourself... why not try to short call spreads?
We have done that in the past... looking for parabolic runs in individual names and selling call spreads into the run higher. However, because of the low implied volatility available on calls, if you did want to sell those call spreads you would have to be pretty tight to the price of the stock. It's not been an easy trade.
The easiest setup still is to sell put spreads in uptrending names. It's boring, and we may miss out on some action, but that's the process we work with and it will continue to work in 2018.
Trade #1: AAPL
Classic base on base pattern, and a compression breakout. The odds of trend continuation are high here. Instead of buying the dip, we're buying the breakout.
Trade Setup
Expected Price: 176.90
Sell to Open AAPL Feb 165/160 Put Spread
Tier 1: Enter at 0.88, exit at 0.38
Tier 2: Enter at 1.18, Exit at 0.68
Tier 3: Enter at 1.48, Exit at 0.98