Update: April 5th, 2021
Rolling the call spread higher, and closing out the put side for now.
Update: May 11th, 2021
Closing the trade for a loss.
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By Steven Place
By Steven Place
The rotational correction is still going on. S&P looks healthy due to having exposure to energy, industrials, and banks. Nasdaq looks “OK” and the Russell 2000 has a key support level that’s holding… for now.
Yet there is a new class of investor/trader that doesn’t see it that way. Their portfolios have been cut by a massive amount due to overleverage in tech momentum, pot stocks, solar plays, and whatever their chat room pumper sent them.
Those names look tragic, and they probably won’t get off the mat for a while.
To bookend the most recent drama, we find out over the weekend that a family office is overleveraged in tech CFDs… to the point that it represents a systemic risk to some banks.
Now, I don’t think that news is super bearish. In fact, the news coming out probably means that the bloodbath is about over. Names like BIDU and VIPS already were smashed, and now we have a narrative to attach to price action.
With that news, I am OK putting risk on some of these broken momentum names. Our other two plays will be simple relative strength setups.
ARKK is the tech momentum darling fund. And for the past few months, it’s doing what tech momentum does best– rally 50% then drop 50%.
We’re coming back into the impulse lows, and the rising 200 day moving average just at 110. My feel here is that we can break the most recent low, do a stop run, and reverse higher. This is a classic “momentum divergence” setup and we will start scaling in here and adding into that.
Trade Setup
Expected Price: 111.3
Sell to Open ARKK 21May21 95/90 Put Spread
Tier 1: Enter at 1.00, Exit at 0.32
Tier 2: Enter at 1.4, Exit at 0.68
Tier 3: Enter at 1.8, Exit at 0.9
Stop Out If Close Under 94.89
Solid move off the lows in TGT, and the negative earnings reaction was swiftly taken out and the stock is now at new all time highs. I like entering here and scaling into pullbacks.
Trade Setup
Expected Price: 199.84
Sell to Open TGT 21May21 185/180 Put Spread
Tier 1: Enter at 1, Exit at 0.32
Tier 2: Enter at 1.4, Exit at 0.68
Tier 3: Enter at 1.8, Exit at 0.9
Stop Out If Close Under 184.89
CSCO is another name that’s hitting new local highs– I’m not sure if it’s all time highs because it’s CSCO and there are levels back from 1999 that may be coming into play.
Either way, I want to play it on the first pullback. Due to the duration of our trade, there is the potential for earnings risk and we will keep an eye on it into earnings– if we don’t have enough of a cushion on the trade, then we will close out for breakeven to avoid that risk.
Trade Setup
Expected Price: 51
Sell to Open CSCO 21May21 48/46 Put Spread
Tier 1: Enter at 0.42, Exit at 0.15
Tier 2: Enter at 0.588, Exit at 0.29
Tier 3: Enter at 0.756, Exit at 0.4
Stop Out If Close Under 47.89
By Steven Place
By Steven Place
The rotational correction continues to play out. The S&P has seen a fairly normal pullback here, retesting the rising 50 day moving average and some previous pivot levels, so it’s not “end of the world” price action…
… unless you dive down into some sectors of the market, and it’s a bit of a bloodbath.
Solar stocks are retesting their lows, and many of the momentum darlings that worked so well over the past 3 months just can’t get off the mat.
This is normal– it’s a reset in momentum stocks while more stable names just continue to churn. There’s been some ugly action in large cap tech, and we are seeing a reset in financial, energy, and industrial names.
We’re also (finally) getting the bid in US Treasuries that is helping this reset. Back last week we started to see signs of instability because of the spike higher in rates, and the best thing for equities right now is if Treasuries start to settle into a bit more of a trading range with more reversion than trend.
Overall, still a constructive market, if you’re in the right markets. We’re going to keep our focus on some reflation trades and an oversold trade in China stocks.
UNP has a technical breakout look with some “tailwinds” behind it on the news front. Overall structure looks great and the odds of trend continuation are higher here as the reflation trade will bring in more buyers into new highs.
There’s also the hilariously sad container ship that is blocking the Suez canal. Turns out it may take more time to dig it out, which will lead to higher freight costs, which may benefit rail stocks by proxy.
Trade Setup
Expected Price: 216.09
Sell to Open UNP 21May21 200/195 Put Spread
Tier 1: Enter at 1.07, Exit at 0.4
Tier 2: Enter at 1.498, Exit at 0.78
Tier 3: Enter at 1.926, Exit at 1.05
Stop Out If Close Under 199.89
An absolute monster of a move after the failed breakdown underneath 255. This is a textbook case of “failed move leads to run to the other end of the range” and the stock has seen a breakout into new highs without any sort of pause.
I think we can plan a long setup in a few weeks, but we’re not there yet. Instead, I’m looking for the stock to make a parabolic run above 300 and that will be a good spot for a fade trade.
Trade Setup
Expected Price: 306
Sell to Open HD 21May21 325/330 Call Spread
Tier 1: Enter at 0.84, Exit at 0.13
Tier 2: Enter at 1.176, Exit at 0.4
Tier 3: Enter at 1.512, Exit at 0.53
Stop Out If Close Over 325.11
FXI has seen a nasty move lower on China reg news. And boy is it worse on individual names– just pull up a chart of BIDU or TME to see how it’s going for these names.
It’s pulling back into a huge level on a weekly chart– I’m not sure the move is completely over, but this is a good spot to initiate risk.
There’s a gap up premarket, I will not chase, if this thing wants to run to 50 without me that’s fine, but there’s probably one more heartbreak move for anyone who bought this dip and will see their stops run out.
Trade Setup
Expected Price: 45.34
Sell to Open FXI 21May21 42/39 Put Spread
Tier 1: Enter at 0.38, Exit at 0.07
Tier 2: Enter at 0.532, Exit at 0.03
Tier 3: Enter at 0.684, Exit at 0.03
Stop Out If Close Under 41.89
By Steven Place
By Steven Place
Markets are undergoing a “rotational correction” right now. After lagging for a few weeks, tech had a good run today, while banks, energy, and industrials all took a back seat.
This is driven by the narrative surrounding rates:
These aren’t set in stone– it’s simply the current narrative that the market is working with.
Let’s talk rates, and bonds. It’s a freefall, complete crash mode as the long bond trade has the worst start to the year since… something like 20 years?
Of course we are coming out of the “deflationary vortex” spiral so some reversion is warranted… just in the short term I’m expecting this relationship to revert a bit.
If that happens we should get some very nice entries in the inflationary theme.
With the hard selloff in crude last week, Conoco has seen a nice pullback here. I think we’ve seen enough blood– if we do knock out a lower low, odds are it will be on the back of a momentum divergence. Given where the stock has come from, I expect buyers to start showing up between here and the low 50s.
Trade Setup
Expected Price: 52.22
Sell to Open COP 21May21 45/42 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 44.89
Very nice run from a few months ago, on the continued optimism about travel unlocking soon. I think the premise is sound, it’s just that the stock got a little bit ahead of itself. I want to start a fresh entry off those buying wicks from two weeks ago.
Trade Setup
Expected Price: 127.71
Sell to Open WYNN 21May21 115/110 Put Spread
Tier 1: Enter at 1.05, Exit at 0.37
Tier 2: Enter at 1.47, Exit at 0.76
Tier 3: Enter at 1.89, Exit at 1.01
Stop Out If Close Under 114.89
One of my favorite traders, I’m looking for a deeper pullback here. If we don’t get it, we don’t get it, but I am looking for an attempt of the most recent breakout levels as an entry.
Trade Setup
Expected Price: 257.74
Sell to Open CMI 21May21 240/230 Put Spread
Tier 1: Enter at 2, Exit at 0.64
Tier 2: Enter at 2.8, Exit at 1.36
Tier 3: Enter at 3.6, Exit at 1.8
Stop Out If Close Under 239.89