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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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