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Proactive Spreads, February 21st, 2019 – RUT, GLD, AAPL

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The market has been a straight shot higher without any significant reversion since the year started.

Overall, we’re averaging 0.45% gains every single day. If this continues, we hit 3000 before the end of March. I don’t think that’s sustainable.

That being said, the breadth behind this move indicates that a retest of the swing lows isn’t in the cards. Odds are, as we head into the Spring, the market will start to exhibit actual reversion.

Range bound action.

As the S&P heads into the 2800 resistance, I expect some supply to come onto the market. My gut here says that we will overshoot the Oct-Dec highs before seeing the breakout fail. It will be enough of a move to suck in some new buyers and squeeze out the last remaining shorts.

Trade #1: RUT

The Russell 200 index is currently 9% above its 50 day moving average and headed into key price resistance, along with a declining 200 day moving average. This is a good place to scale short with the expectation that, while we won’t crash, we’ll see a pullback and some sideways action.

Trade Setup

Expected Price: 1575

Sell to Open RUT Apr 1670/1675 Call Spread

Tier 1: Enter at 0.65, Exit at 0.15

Tier 2: Enter at 0.95, Exit at 0.45

Tier 3: Enter at 1.25, Exit at 0.75

Trade #2: GLD

Looking for a retest of the previous swing lows as well as the rising 50 day moving average.

Trade Setup

Expected Price: 123.50

Sell to Open GLD Apr 120/117 Put Spread

Tier 1: Enter at 0.30,, Exit at 0.05

Tier 2: Enter at 0.50, Exit at 0.15

Tier 3: Enter at 0.70, Exit at 0.35

Trade #3: AAPL

 

Last December, AAPL had a “baby and bathwater trade” where, after a massive decline, they guided down ahead of earnings. When you see a gap down on guidance after a nasty selloff… the bad news gets priced in. That’s what happened with AAPL, and it rallied on earnings.

I expect, along with the other FANG stocks, a range to get knocked out. I want to be bullish here, and then start looking at bearish setups when it comes into the 190s.

Right now, I’ll start scaling into bull put spreads.

Trade Setup

Expected Price: 171.07

Sell to Open AAPL Apr 160/155 Put Spread

Tier 1: Enter at 0.77, Exit at 0.27

Tier 2: Enter at 1.07, Exit at 0.57

Tier 3: Enter at 1.37, Exit at 0.87

Disclaimer

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