After nearly 2 years of grinding higher action, we’re finally back in a market that is a little more tradeable with credit spreads.
Last week we saw a strong selloff down to the 200 day moving average, which was actually a test of the overnight low in the futures market. It’s possible that we go back and retest that level, but you’ll need to see many of the large cap leaders finally give up on their uptrends… and that’s not something that I’ve seen recently.
Still, the strength of this bounce will most likely be faded as we approach the 2800 level. Enough technical damage was done that we don’t need to assume that “up” is the only way the market can go now.
If you sold put spreads into the big move lower, you should be scaling out of those positions already. You can then use any further downside vol to reload on those positions again or look at new setups when they manifest.
And if we squeeze just a bit higher, it’ll be a great area to start putting on call credit spreads. We’ve already discussed these in newsletters past, so you can go to the archives and see the setups available for that push.
Trade #1: GOOGL
Any further push is a good risk/reward short. There was a large gap down after earnings that will have more sellers come in.
Trade Setup
Expected Price: 1105
Sell to Open GOOGL 1200/1220 Call Spread
(This is a 20-wide spread. The 1210 option should open on Tuesday so you can do a similar trade and cut the prices in half.)
Tier 1: Enter at 3.00, Exit at 1.00
Tier 2: Enter at 4.00, Exit at 2.00
Tier 3: Enter at 5.00, Exit at 3.00