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Proactive Spreads, October 20th, 2020 – IBB, NVDA, LULU

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The range-bound price action in the market is something we’ve been anticipating…

… and it’s still going!

We have the NASDAQ Gap up last Monday but it couldn’t hold that strength.

Tech stocks continue to fade on the back of Google antitrust risk and how that risk spills over into the rest of large cap tech stocks.

You also have three major things sitting up in the air right now–

  1. Earnings Season
  2. Fiscal Deal
  3. Election

So it’s no surprise that the market is just a choppy range-bound mess — that’s okay, that happens sometimes

Anytime we see just a little bit of weakness our thoughts immediately pivot to whether this will be the “big one” — some kind of massive move to the down side

And I don’t think that’s going to happen. I think that the market is still over-hedged and  that makes it difficult to see any true follow through to the downside

Because of these events, especially earning season it becomes a little more difficult for us to put on credit spread trades because we like to avoid earnings events.

Today will focus on three setups. The first is a sector play, the second is a dip buy in one of my favorite stocks (we should have a good cushion through earnings) and the third is in a stock that doesn’t have earnings in the “normal” cycle.

Trade #1: IBB

IBB has headed back into previous resistance from the past few months, and there is support coming into play in the low 133’s. I expect selling to slow down here.

Trade Setup

Expected Price: 136.63

Sell to Open IBB 20Nov20 128/125 Put Spread

Tier 1: Enter at 0.63, Exit at 0.22

Tier 2: Enter at 0.882, Exit at 0.452

Tier 3: Enter at 1.134, Exit at 0.604

Stop Out If Close Under 127.89

Trade #2: NVDA

I want to see a “rug pull” down to the next pivot level and the rising 50 day moving average.

Trade Setup

Expected Price: 516.44

Sell to Open NVDA 20Nov20 445/440 Put Spread

Tier 1: Enter at 0.85, Exit at 0.14

Tier 2: Enter at 1.19, Exit at 0.42

Tier 3: Enter at 1.53, Exit at 0.55

Stop Out If Close Under 444.89

Trade #3: LULU

LULU found resistance right where it should have, and is now coming back into a key pivot level that has been in play for a month. Odds are this stays in a range for a while and we can put that to our advantage.

Trade Setup

Expected Price: 330.99

Sell to Open LULU 20Nov20 290/280 Put Spread

Tier 1: Enter at 1.35, Exit at 0.13

Tier 2: Enter at 1.89, Exit at 0.26

Tier 3: Enter at 2.43, Exit at 0.31

Stop Out If Close Under 444.89

Disclaimer

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