That was about as textbook of a pullback as you can get. The market had a shakeout yesterday and a gap down today that looked as though it could have followthrough, but was met with very aggressive buyers.
I still maintain the idea that any corrections will be rotational in nature, and most likely sideways. With the VIX still above 20, it’s difficult to find followthrough due to hedgers closing out positions into selloffs. And I have this sneaking suspicion that institutions are still caught on the wrong foot, underexposed in equities.
If overall market gets too stretched, we can be more aggressively short- see our recent trade in SMH as an example. But for now we will stick with our bread-and-butter setup.
Trade #1: AAPL
The breakout attempt yesterday failed… but we didn’t see a ton of downside followthrough. Instead, we had a bullish piercing pattern and the stock went back into this week’s range. There is still plenty of demand into any pushes lower, and I think we can take advantage of that.
Expected Price: 123.24
Sell to Open AAPL 15Jan21 112.5/110 Put Spread
Tier 1: Enter at 0.38, Exit at 0.01
Tier 2: Enter at 0.532, Exit at 0.13
Tier 3: Enter at 0.684, Exit at 0.17
Stop Out If Close Under 112.39
Trade #2: TWTR
TWTR caught some heat today on news that they’re integrating with SNAP. I’ve long believed that TWTR has been a “clown car in a gold mine” and if they executed properly they could unlock much more value. I’m buying the strength here and will add to the spreads on further pullbacks.
Expected Price: 51.21
Sell to Open TWTR 15Jan21 46/43 Put Spread
Tier 1: Enter at 0.48, Exit at 0.05
Tier 2: Enter at 0.672, Exit at 0.2
Tier 3: Enter at 0.864, Exit at 0.26
Stop Out If Close Under 45.89
Trade #3: XOM
This is a “stretch” trade, meaning we may not see that upside price target. But just in case, I want to be ready. 47 is a massive level and if we see a test of it without any consolidation first, it’s an easy fade to take.
Expected Price: 47
Sell to Open XOM 15Jan21 50/52.5 Call Spread
Tier 1: Enter at 0.45, Exit at 0.1
Tier 2: Enter at 0.63, Exit at 0.25
Tier 3: Enter at 0.81, Exit at 0.33
Stop Out If Close Over 50.11