The S&P 500 is having an “overshoot” as it cleared the February resistance, only to have it pullback. There is a tendency, if a breakout fails, for the market to run to the other end of the trading range. In this case I’ll define the range as the support lows at 3130.
Overall it’s a tame market. Volatility is contracting, headline risk has moved from pandemics to earnings, and then to fiscal policy. We’re seeing rotation out of tech and into industrials/commodities… all very constructive price action.
Unless we see an introduction of volatility then we need to assume that corrections will be shallow and short lived.
Trade #1: FXI
After having a monster run, FXI has come back to the June highs. This is the first pullback after an upside volatility spike, which gives us good odds.
Expected Price: 42.05
Sell to Open FXI 21Aug20 40/37 Put Spread
Tier 1: Enter at 0.32, Exit at 0.05
Tier 2: Enter at 0.45, Exit at 0.10
Tier 3: Enter at 0.58, Exit at 0.15
Stop Out If Close Under 39.89
Trade #2: GLD
Gold is having a parabolic run, and is gapping up premarket into the 180s. I like scaling into a fade here.
Expected Price: 181
Sell to Open GLD 21Aug20 190/193 Put Spread
Tier 1: Enter at 0.4, Exit at 0.05
(You should be able to get a higher fill if GLD is trading into 182 premarket)
Tier 2: Enter at 0.56, Exit at 0.07
Tier 3: Enter at 0.72, Exit at 0.08
Stop Out If Close Above 191.11
Trade #3: AMD
The company had a stellar earnings event, and is breaking to new all time highs. Any shallow pullback is a good time for bull put spreads.
Expected Price: 68.29
Sell to Open AMD 21Aug20 60/57.5 Put Spread
Tier 1: Enter at 0.54, Exit at 0.2
Tier 2: Enter at 0.756, Exit at 0.41
Tier 3: Enter at 0.972, Exit at 0.54
Stop Out If Close Under 59.8