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Proactive Spreads, October 12th, 2020 – DKNG, COST, ADBE

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Markets accelerated higher today as there were more buyers than sellers.

Let’s not overthink it here! We’ve got the election and fiscal deal narrative, but take a step back and think about the structure of the market for a minute…

After going parabolic at the end of summer, large cap stocks got smashed as everyone was leaning the wrong way. We then had a few months of chop– if you tried to nail a big move in FANG stocks you got chopped up to death.

And here we are, rallying with as few people on board as possible– traders got chopped up to death in the fall, and investors are still overhedged into the election.

Is it any surprise that we saw a move?

Stocks are a big overbought. The S&P 500 rallied over 5% in a 4 day window, and that doesn’t happen often when we are near all time highs. And we’ve got headline risk, where one tweet can send this market down 1% in an hour.

Yet as it stands, this is not bearish tape. Unless the major markets take out Friday’s lows, we need to assume trend continuation.

Trade #1: DKNG

After a parabolic push into the 60s, the stock has round-tripped the move. Support levels are coming up quick– the rising 50 day moving average, prior price support, and previous resistance. I like scaling in here to align with the longer term trend.

Trade Setup

Expected Price: 50.75

Sell to Open DKNG 30Oct20 43/40 Put Spread

Tier 1: Enter at 0.45, Exit at 0.01

Tier 2: Enter at 0.63, Exit at 0.15

Tier 3: Enter at 0.81, Exit at 0.19

Stop Out If Close Under 42.89

Trade #2: COST

Very nice move– we are going to start looking for the first pullback to enter long.

Trade Setup

Expected Price: 367.94

Sell to Open COST 20Nov20 345/340 Put Spread

Tier 1: Enter at 0.7, Exit at 0.04

Tier 2: Enter at 0.98, Exit at 0.17

Tier 3: Enter at 1.26, Exit at 0.21

Stop Out If Close Under 344.89

Trade #3: ADBE

This stock just started its move and isn’t overextended– even if it finds resistance it will base out under 530 and we can look to the long side.

Trade Setup

Expected Price: 510.84

Sell to Open ADBE 20Nov20 465/460 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 464.89

Disclaimer

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