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Proactive Spreads, March 5th, 2019 – CRM, XLNX

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Monday saw a failed auction above 2800 and an actual pickup in volatility. It came down to multi-week support and bounced… and now we’re back in the middle of the range.

This pullback was rotational. One of the major reasons that the market bounced so aggressively in the afternoon trading session was that large cap tech stocks like AMZN and FB were very strong. This is in conjunction with A LOT of momentum stocks finally seeing some weakness.

The 2800 level is an important area. Everyone knows this. My thoughts have been the market will hold and find some actual reversion, but the possibility that you’d get one last squeeze before a reversal was still very real. The failed auction this Monday, and last Monday, are providing evidence that the momentum carrying this market is finally wearing out and we could see a deeper pullback.

Trade #1: CRM

CRM has been the leader of the “Enterprise Software” theme that, quite frankly, has led the market since December of last year. The stock pushed to new highs but saw aggressive selling into its earnings event (which just took place overnight.)

The stock traded down to 152 premarket and I think that’s a good spot to initiate.

Trade Setup

Expected Price: 152

PRICING MAY SHIFT DUE TO CHANGES IN IMPLIED VOLATILITY POST EARNINGS

Sell to Open CRM  Apr 135/130 Put Spread

Tier 1: Enter at 0.70, Exit at 0.20

Tier 2: Enter at 1.00, Exit at 0.50

Tier 3: Enter at 1.30, Exit at 0.80

Trade #2: XLNX

Another momentum name that’s finally seeing some selling. I’m looking for a retest of the previous range highs as an entry point. It also coincides with an opening gap.

Trade Setup

Expected Price: 115

Sell to Open XLNX Apr 110/105 Put Spread

Tier 1: Enter at .90, Exit at 0.40

Tier 2: Enter at 1.20, Exit at 0.70

Tier 3: Enter at 1.50, Exit at 1.00

 

 

Disclaimer

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