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Proactive Spreads, December 1st, 2021 – COP, DIS, IWM

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Markets are taking it on the chin from news of a new… biological risk… along with the Fed chair telling us that hey, guess what, inflation may not be transitory and we’ll need to pull the punchbowl in soon.

Just like all the pullbacks from the past year, it always feels terrible when going through it, but let’s put it in context… we’re 4% off all time highs. That’s about par for the course, and it’s possible we see a deeper pull just under 4500 to get a proper flush.

On the options side, we are seeing some spooky things. VVIX is above 155, and that needs to revert hard or else things start to break in the markets. And the spot VIX closed above 30 for the first time in a while. If the market sticks with a high VIX then that can also lead to a breakdown.

But overall we were due for the market to exhale.

Today we are focusing on a stock that has been a solid play for a few months and is finally seeing a pullback. We’ll also look at a knifecatch in DIS and a place to pick up IWM.

Trade #1: COP

Conoco has seen a solid move, and is experiencing a proper pullback, first one since the fall breakout started. I’m targeting the swing AVWAP from the pivot lows, which is a good place to start scaling in.

Trade Setup

Expected Price: 68

Sell to Open COP 21Jan22 60/57.5 Put Spread

Tier 1: Enter at 0.4, Exit at 0.04

Tier 2: Enter at 0.56, Exit at 0.17

Tier 3: Enter at 0.72, Exit at 0.22

Stop Out If Close Under 59.89

Trade #2: DIS

Including the earnings gap, DIS is down nearly 20% on this selloff. This kind of move, in this kind of timeframe, doesn’t happen very often. It’s headed into a massive level just under 140, and I think this is a good time to start scaling into some put spread sales.

Trade Setup

Expected Price: 142.15

Sell to Open DIS 21Jan22 130/125 Put Spread

Tier 1: Enter at 0.85, Exit at 0.14

Tier 2: Enter at 1.19, Exit at 0.42

Tier 3: Enter at 1.53, Exit at 0.55

Stop Out If Close Under 129.89

Trade #3: IWM

Man, everyone loved that breakout when it hit, and the gap down last Friday left a lot of people stuck on the wrong side of the trade. Volume is starting to feel pretty capitulatory, so if we get a push to the support level, then we need to be involved.

Trade Setup

Expected Price: 209.26

Sell to Open IWM 21Jan22 191/188 Put Spread

Tier 1: Enter at 0.58, Exit at 0.16

Tier 2: Enter at 0.812, Exit at 0.37

Tier 3: Enter at 1.044, Exit at 0.49

Stop Out If Close Under 190.89

Disclaimer

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