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Proactive Spreads, December 21st, 2020 – CHWY, TSLA, ROKU

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Happy winter solstice everyone!

We’ll just call this market “weird.” I won’t attempt to explain the why behind the moves, but I will tell you what is happening.

The markets opened down by a sizeable amount. It was U-G-L-Y. We saw a probe lower into the first hour of trading, then all of a sudden the buy programs come back on. It’s holiday trading, and lower liquidity makes it pretty interesting.

Underneath the surface, it’s getting weirder. There are many names that are marching to their own beat, completely uncorrelated to the market. It reminds me of the move in JKS a few months ago, where a buyer just provides constant pressure in these names.

That’s my focus for today, trying to fade some of these momentum names.

Trade #1: CHWY

CHWY is a name I thought got overbought about 20 points ago. It’s now hitting extremes and with the elevated option premia we have a good spot to play this.

Trade Setup

Expected Price: 107.36

Sell to Open CHWY 120 120/125 Call 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 Over 120.11

Trade #2: TSLA

TSLA hit S&P inclusion last friday which led to a spike higher in both price and volume. Id like to see a “rug pull” and test some recent levels. This is the third time we’ve attempted to pick up the dip in this name since it broke 450.

Trade Setup

Expected Price: 601.48

Sell to Open TSLA 15Jan21 540/535 Put Spread

Tier 1: Enter at 1.15, Exit at 0.49

Tier 2: Enter at 1.61, Exit at 0.93

Tier 3: Enter at 2.07, Exit at 1.24

Stop Out If Close Under 539.89

Trade #3: ROKU

Similar structure in CHWY. It gapped higher on Thursday, but took out that day’s high today. I think we’re getting close to a top.

Trade Setup

Expected Price: 351.72

Sell to Open ROKU 15Jan21 385/390 Call Spread

Tier 1: Enter at 1.2, Exit at 0.55

Tier 2: Enter at 1.68, Exit at 1.01

Tier 3: Enter at 2.16, Exit at 1.36

Stop Out If Close Over 385.11

Disclaimer

U.S. GOVERNMENT REQUIRED DISCLAIMER – COMMODITY FUTURES TRADING COMMISSION. FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS. DON’T TRADE WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS WEBSITE IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED ON THIS WEBSITE. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY, SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN