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Proactive Spreads, November 19th, 2020 – VZ, TSLA, DIS

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Not much to say today, as in previous PS newsletters we’ve laid out all the clear risks in the market.

Let’s keep it simple– the longer we hold above 3500, the higher the odds for trend continuation.

And today was a “piercing pattern,” meaning that the gap down and probe lower was met with aggressive buyers. I’d prefer a deeper pullback, yet it’s still a very strong market.

At what point do we top out? When enough hedging has been burned off. The VIX is still in the 20s as investors are still scared about the ‘rona and the fiscal deal that seems to never come around. Once we process through those risks, that’s when we can start getting a touch more aggressive with selling call spreads. Until then, we need to work with any dips the market will give us.

Trade #1: VZ

This is a bit more of a “boring” setup as Verizon is not traditionally a fast moving stock. Because of this we will look at Jan opex for our trade setups.

The stock is flirting with new highs, but more sellers need to get cleaned out first. I want to see an attempt of that gap fill to initiate a position.

Trade Setup

Expected Price: 59.47

Sell to Open VZ 15Jan21 57.5/55 Put Spread

Tier 1: Enter at 0.51, Exit at 0.17

Tier 2: Enter at 0.714, Exit at 0.35

Tier 3: Enter at 0.918, Exit at 0.46

Stop Out If Close Under 57.39

Trade #2: TSLA

TSLA finally saw the move out of consolidation. The news of S&P inclusion was the catalyst, yet that has been telegraphed even since August.

Technically, we look for continuation, and I’ll be rooting for a pullback to participate in some spread sales.

Trade Setup

Expected Price: 476.54

Sell to Open TSLA 18Dec20 400/396 Put Spread

Tier 1: Enter at 0.78, Exit at 0.23

Tier 2: Enter at 1.092, Exit at 0.5

Tier 3: Enter at 1.404, Exit at 0.67

Stop Out If Close Under 399.89

Trade #3: DIS

DIS is most likely establishing a “base on base” pattern, creating a new range against the most recent volatility pivot higher. It will probably be a sloppy mess given it’s a proxy to the ‘rona, yet I think the most recent levels at 135 will hold pretty well.

I’m looking for a deeper dip here as it fills the gap from last week.

Trade Setup

Expected Price: 138.34

Sell to Open DIS 18Dec20 130/125 Put Spread

Tier 1: Enter at 0.83, Exit at 0.12

Tier 2: Enter at 1.162, Exit at 0.39

Tier 3: Enter at 1.494, Exit at 0.5

Stop Out If Close Under 129.89

Disclaimer

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