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Proactive Spreads, May 22nd, 2018 – BIDU, COP, UNP

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Markets are still very, very constructive right now. After a strong move about two weeks ago, we’re seeing a rotational correction, where the market goes sideways and different sectors are running underneath the surface.

What I would love right now would be a deeper pullback and an uptick in volatility. Yet I think many people are… so we’re probably not going to get it.

Key support is at 2700. A loss of that level and we just might be able to correct a little deeper. But right now, buyers are in control. The longer we stay above 2700, the higher the odds that the market will continue its run. I’ve got 2800 as an intermediate term target.

Trade #1: BIDU

This is a news catalyst play. The stock is down 15% in 4 days on news that the COO is leaving for family reasons. I think the stock is nearing short term seller exhaustion, and there is a key level tested yesterday at the 240 gap fill level. I like scaling into put spreads here.

Trade Setup

Expected Price: 240

Sell to Open BIDU Jul 220/210 Put Spread

Tier 1: Enter at 1.95, Exit at 0.95

Tier 2: Enter at 2.55, Exit at 1.55

Tier 3: Enter at 3.15, Exit at 2.15

Trade #2: COP

This is the second time I’ve tried to play a dip buy on the stock. Energy stocks are overbought and there was a hard reversal, so I’m expecting this to give a little bit… down to the gap fill level from May 8th.

Trade Setup

Expected Price: 67.75

Sell to Open COP Jul 62.50/60 Put Spread

Tier 1: Enter at 0.38, Exit at 0.13

Tier 2: Enter at 0.53, Exit at 0.28

Tier 3: Enter at 0.68, Exit at 0.43

Trade #3: UNP

This stock has all the characteristics of a short term failed breakout. After clearing 143.25 and hitting new highs, the stock is now underneath that level. This indicates short term buyer exhaustion and maybe a little stop run. I’m looking for a test of the most recent pivot level as an entry.

Trade Setup

Expected Price: 140

Sell to Open UNP Jul 130/125 Put Spread

Tier 1: Enter at 0.78, Exit at 0.28

Tier 2: Enter at 1.08, Exit at 0.58

Tier 3: Enter at 1.38, Exit at 0.88

Disclaimer

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