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Full Time Profits, September 10th, 2018 – AAPL, FB, COP

September 10, 2018 By Steven Place

This might be “it” for the pullback near term.

This has been an incredibly orderly selloff. The daily ranges haven’t been extended, and it has simply been a slow march lower. All the stocks I’m looking at are hitting support… and holding for now.

But more importantly is what I think is going on in options-land.

For nearly a month, the VIX has been persistently elevated in spite of the market hitting all time highs. Investors were buying protection, and the option market makers continued to lift the bid because they were concerned about not getting enough juice to justify holding risk into a seasonanlly volatile part of the year.

Think about the dynamic here. Say you’re an investor and you bought VIX calls or SPX puts. And the market starts to pullback.

You think that the hedge has done its job, so you close it out. That means you sell to close SPX puts.

A market maker has to take the other side, which gets them net short directional exposure, so they go out and buy some futures to even out their position.

See how that works? When investors close out hedges, it puts a bid into the markets. That’s what I expect will happen with any further selling, and it will help to provide a floor on stock prices.

Trade #1: AAPL

Planning an entry on the rising 20 day moving average and previous support. We’ve got some call spreads still open on this, so it will synthetically turn into an iron condor.

Trade Setup

Expected Price: 217.87

Sell to Open AAPL 205/200 Put Spread

Tier 1: Enter at 0.84, Exit at 0.34

Tier 2: Enter at 1.14, Exit at 0.64

Tier 3: Enter at 1.44, Exit at 0.94

Trade #2: FB

The change in character of Facebook stock cannot be overstated. That gap down after all time highs has left psychological and technical damage imprinted, and I think that it will lead to a more volatile trading range that will take over a year to resolve before we can even consider the stock being back in an uptrend.

Because of that, if you do want to buy dips, you need to allow for wider price movement and truly statistically stretched price movement. Way too many people were aggressive selling put spreads here and I think the early dip buyers will be punished. Look for the secondary push down to the April lows.

Trade Setup

Expected Price: 155

Sell to Open FB 145/140 Put Spread

Tier 1: Enter at 0.89, Exit at 0.49

Tier 2: Enter at 1.19, Exit at 0.69

Tier 3: Enter at 1.49, Exit at 0.99

Trade #3: COP

I want a retest of that large selloff from August. That also coincides with the 50% channel level, and the rising 200 day moving average will help to provide technical support in the next month or so.

Trade Setup

Expected Price: 67.70

Sell to Open COP 62.50/60 Put Spread

Tier 1: Enter at 0.33, Exit at 0.08

Tier 2: Enter at 0.48, Exit at 0.23

Tier 3: Enter at 0.63, Exit at 0.38

Disclaimer

U.S. GOVERNMENT REQUIRED DISCLAIMER – COMMODITY FUTURES TRADING COMMISSION. FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS. DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS WEBSITE IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED ON THIS WEBSITE. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY, SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN

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