Let’s try our best to not be the heroes in the market.
Since the parabolic trend in tech broke last weak, we have seen continued weakness across the board. And that’s fine! We were due for a selloff and we are seeing it come through today as the gap higher failed.
There’s always a risk in “buying the dip.”
If you’re too early, you get absolutely runover. If you’re too late, then you miss the turn in the stock and you’re left out.
Trading Proactively helps to achieve a balance between the two– by using credit spreads and scaling in, and that looks to be the best approach right now.
I don’t think we’re going to have a crash. The options premiums are too high, signalling that many investors are already hedged up. If they close their hedges, then that creates a floor in the markets.
This pullback, combined with the rich premium in October options, gives us a great series of setups. I don’t want to be too early so we will be planning on entries lower than current pricing. There’s always the chance we miss out if the market immediately turns higher here… but I think better odds are for a little more downside as tech looks to find the lower end of a trading range.
Trade #1: AAPL
Looking for the first test of the rising 50 day moving average, along with post earnings gap fill, along with a rising trendline just underneath that.
The pricing on this spread looks a little off, so double check the pricing when AAPL comes into 108.
Trade Setup
Expected Price: 108.61
Sell to Open AAPL 16Oct20 97.5/95 Put Spread
Tier 1: Enter at 0.5, Exit at 0.16
Tier 2: Enter at 0.7, Exit at 0.34
Tier 3: Enter at 0.9, Exit at 0.45
Stop Out If Close Under 97.39
Trade #2: NVDA
Similar setup as AAPL – looking for a test of the 50 day moving average and the rising trendline, and there is previous resistance/potential support in the 429 area.
Also, like AAPL, option bid/ask is pretty wide due to lower liquidity. Make sure the pricing lines up as we come into our expected target.
Trade Setup
Expected Price: 454
Sell to Open NVDA 16Oct20 390/385 Put Spread
Tier 1: Enter at 0.9, Exit at 0.2
Tier 2: Enter at 1.26, Exit at 0.51
Tier 3: Enter at 1.62, Exit at 0.67
Stop Out If Close Under 389.89
Trade #3: UPS
We are anticipating a breakdown in UPS and the first dip to be bought. I’m using the breakout candle from August 7th, to guide expected price– 50% of that bar’s range.
Trade Setup
Expected Price: 151.25
Sell to Open UPS 16Oct20 135/130 Put Spread
Tier 1: Enter at 0.8, Exit at 0.08
Tier 2: Enter at 1.12, Exit at 0.34
Tier 3: Enter at 1.44, Exit at 0.44
Stop Out If Close Under 134.89