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Proactive Spreads, June 28th 2018 – NVDA, NFLX

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What a difference a few days make. Monday led off with a gap and trend down day. We went from the middle of a “constructive” range to test the 2700 level we’ve been watching for a while now.

For me there’s a few scenarios that can play out.

(I’m writing this on Wednesday evening so by the time you get it on Thursday morning we may have more data.)

I think the most bullish scenario would be an overnight gap down and flush early, followed by aggressive buyers. That leads to a hard bounce into Friday and 2700 is regained.

A bearish scenario would be price acceptance into 2700… sideways action is NOT good for stocks here, because it shows lack of aggressive buyers. If that happens, especially through Thursday, then Friday we’ll probably trickle lower. If Friday finishes at the lows, then we’d be looking for a Monday gap down/reversal, similar to the previous scenario.

Some areas look like hot garbage. Financials and industrials come to mind, so just keep an eye on those to see if they really give up the ghost.

In terms of new short ideas, I’m warming up to getting a little more aggressive to the short side, but only after we see more upside price discovery. At these levels, shorting in the hole is a bad idea.

As it stands, a lot of Proactive Spreads setups have triggered. There’s not much need to introduce any kind of crazy risk additions. All I’m doing now is updating some setups we had earlier in the month that need new option strikes.

Trade #1: NVDA

Semiconductor stocks as a whole don’t look too hot here. We want to see capitulative movement to retest the breakout area in the high 220’s.

Trade Setup

Expected Price: 226.65

Sell to Open NVDA Aug 195/190 Put Spread

Tier 1: Enter at 0.80, Exit at 0.30

Tier 2: Enter at 1.10, Exit at 0.60

No Tier 3 (Earnings)

Trade #2: NFLX

This is a wishful thinking setup. Meaning I really don’t think that they’ll take it down this far, but if they do I want to be prepared. Earnings are coming up and option premiums are pretty jacked up as it is. Let’s get a flush and get an amazing entry on this momentum stock.

I’m also widening my profit taking targets on this because the bounce into this level should be aggressive.

Trade Setup

Expected Price: 350

Sell to Open NFLX Aug 285/280 Put Spread

Tier 1: Enter at 0.87, Exit at 0.17

Tier 2: Enter at 1.17, Exit at 0.37

No Tier 3 (Earnings)

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