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Proactive Spreads, April 30th, 2018 – PYPL, BA

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The “base case” for the market still remains the same.

We’re working out a large, multi-month correction. Rangebound in nature, with high volatility in between.

So far there hasn’t been any price action to invalidate that case.

We’re pushing through the rest of the big earnings reports this week (looking at you, AAPL) and after that I expect the summer to continue to be choppy.

I don’t think that we’re due for some kind of a market crash… yet there are not many leading stocks here. You’ve got LULU, COP, and V… other than that many other charts reflect what we’re seeing in the market. Choppy ranges and higher volatility.

Trade #1: PYPL

I’m looking for a shakeout trade in Paypal. Here’s how it’s going  to play out.

Last weeks lows get broken, and then the stock loses 72.50. Selling accelerates, and the 200 day moving average is broken.

That’s enough price action for a narrative to get started and the stock jams into 70. That’s where institutions will pull their bid and then reverse the stock higher as they sweep up better prices for their holdings.

The technical term for this action is a 2b reversal, also known as a failed breakdown.

Trade Setup

Expected Price: 70

Sell to Open PYPL Jun 65/62.50 Put Spread

Tier 1: Enter at 0.40, Exit at 0.10

Tier 2: Enter at 0.60, Exit at 0.20

Tier 3: Enter at 0.80, Exit at 0.40

Trade #2: BA

This is an update to a setup from about a month ago. We’re adjusting to June options.

Trade Setup

Expected Price: 300

Sell to Open BA Jun 275/270 Put Spread

Tier 1: Enter at 0.80, Exit at 0.30

Tier 2: Enter at 1.10, Exit at 0.60

Tier 3: Enter at 1.40, Exit at 0.90

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