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Proactive Spreads, December 24th 2020 – PYPL, BIDU, IBB

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Merry Christmas Eve everyone!

S&P continues to knock out a time-based correction, with rotation underneath the surface. The 3650 support held into a rug pull, so that’s the main level to key off. If 3650 is lost then we can assume the market will enter a deeper corrective environment.

Outside of the “name brand” stocks… it’s the wild-west. The Russell 2000 is the most stretched it’s ever been, and all the SPAC names are running. There are companies that don’t report financials for another few years, and they have appreciated to the point where the market cap is nearing $20bn. It’s wild.

We’ve got some short setups already out from the last newsletter, and in this one we will start planning for pullbacks.

Remember how this works! We are not looking to trade these stocks *now* — we want to trade them when they reach our expected price. If that level is hit, then the value of the spreads should be ready to deploy.

Now I’ve got to run off and start the prime rib roast for tonight– enjoy the break!

Trade #1: PYPL

PYPL is one of the strongest stocks on my list, and I want to play the first pullback in it. The gap fill from last week seems to be a good place to start.

Trade Setup

Expected Price: 230.39

Sell to Open PYPL 15Jan21 217.5/215 Put Spread

Tier 1: Enter at 0.5, Exit at 0.16

Tier 2: Enter at 0.7, Exit at 0.34

Tier 3: Enter at 0.9, Exit at 0.45

Stop Out If Close Under 217.39

Trade #2: BIDU

BIDU is quite parabolic and has been creating a new range for about a week and a half. I don’t think this shelf at 185 will hold and instead the stock will see a push to 175. There’s a key intraday level and about 1/2 of the breakout bar. Scaling in there down to the lower end of that breakout bar should be a good trade.

Trade Setup

Expected Price: 178

Sell to Open BIDU 15Jan21 170/165 Put Spread

Tier 1: Enter at 1.3, Exit at 0.67

Tier 2: Enter at 1.82, Exit at 1.18

Tier 3: Enter at 2.34, Exit at 1.59

Stop Out If Close Under 169.89

Trade #3: IBB

I’m about ready for biotech to pull back. IBB has spent about 35 days above its 20 day moving average– not the highest we’ve seen but it’s getting close. I’d like to see a gap fill to enter a position.

Trade Setup

Expected Price: 151.12

Sell to Open IBB 15Jan21 148/145 Put Spread

Tier 1: Enter at 0.8, Exit at 0.42

Tier 2: Enter at 1.12, Exit at 0.74

Tier 3: Enter at 1.44, Exit at 1

Stop Out If Close Under 147.89

Disclaimer

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