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.
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.
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.
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