Proactive Spreads Newsletter

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

We’ve seen a monster run in the S&P, helped along by tech and the semiconductor sector going absolutely bonkers to the upside. I think we’re due for a pullback and retest of the prior resistance and the anchored VWAP from the most recent swing lows right around 4550.

Now if we do get a pullback, everyone will say it’s the end of the world and so on… we just want to be prepared if/when it happens.

Not much from me today in terms of macro or other in depth analysis, as it’s not exactly needed right now. If we get the pullback we want then we’ll put on some risk in these mega-cap tech names. And we’ve got one new setup ready to go today.

Trade #1: AMD

This is AMD, but it’s tied to NVDA which reports earnings this week. If we get some profit taking, I’m looking for a gap fill and a pullback into the swing AVWAP in the high 120s. Now that’s a big ask, so I am willing to start a little higher than that to get a fill.

Trade Setup

Expected Price: 131

Sell to Open AMD 21Jan22 120/115 Put Spread

Tier 1: Enter at 1.5, Exit at 0.9

Tier 2: Enter at 2.1, Exit at 1.52

Tier 3: Enter at 2.7, Exit at 2.05

Stop Out If Close Under 119.89

 

Trade #2: CELH

Celsius is getting smoked on earnings, and it’s very oversold in the context of a longer term uptrend. I’m expecting the prior range to attract previous buyers.

Trade Setup

Expected Price: 76

Sell to Open CELH 21Jan22 60/55 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 59.89

Trade #3: MSFT

Looking for a rug pull in MSFT into the swing AVWAP.

Trade Setup

Expected Price: 325

Sell to Open MSFT 21Jan22 300/295 Put Spread

Tier 1: Enter at 0.8, Exit at 0.08

Tier 2: Enter at 1.12, Exit at 0.34

Tier 3: Enter at 1.44, Exit at 0.44

Stop Out If Close Under 299.89

Markets are still running hot, with TSLA being the workhorse for large cap tech.

On top of that, you’ve got IWM (smallcaps) with a potential breakout, MDY (midcaps) already breaking out, and a ton of risk/meme names running. The party is back on, and it will probably be that way for a bit.

There are some pockets that afford us good risk/reward where they haven’t participated in the rally due to single stock risk, or perhaps a sector that could fall out of favor for a bit. That’s where we will focus today.

Trade #1: PYPL

PYPL, along with other payment processors like V/MA, has not had a good October. It’s selling off right into a major level of support, which I think is a good place to start a position.

Keep in mind– PYPL has earnings so you may want to size down a bit to avoid gap risk. I think it will be OK as much of the bad news is priced in, but earnings are earnings so that’s the risk you’ll need to make.

Trade Setup

Expected Price: 226.88

Sell to Open PYPL 17Dec21 200/195 Put Spread

Tier 1: Enter at 0.75, Exit at 0.02

Tier 2: Enter at 1.05, Exit at 0.26

Tier 3: Enter at 1.35, Exit at 0.32

Stop Out If Close Under 199.89

Trade #2: ARCH

A slightly different chart today in ARCH. This is a coal name that’s had a great move higher, but it’s starting to top out a bit and could be due for a stop run with the weak hands bailing.If we manage to get a flush into the low 80s I want to be involved.

Trade Setup

Expected Price: 81.78

Sell to Open ARCH 17Dec21 70/65 Put Spread

Tier 1: Enter at 0.78, Exit at 0.06

Tier 2: Enter at 1.092, Exit at 0.3

Tier 3: Enter at 1.404, Exit at 0.39

Stop Out If Close Under 69.89

Trade #3: SPG

This is a bit of a “wish” kind of price, but Simon has been in a steady breakout. If we get a pullback then I’ll play it as it comes into retest the prior breakout level.

Trade Setup

Expected Price: 140

Sell to Open SPG 17Dec21 130/125 Put Spread

Tier 1: Enter at 0.56, Exit at 0.2

Tier 2: Enter at 0.784, Exit at -0.06

Tier 3: Enter at 1.008, Exit at -0.11

Stop Out If Close Under 129.89

Two weeks ago everyone was panicking about this being the end of the bull market.

Well… here we are again. The S&P covered 200 points in about 2 weeks. This was led by a short term release valve with the debt ceiling, and a cooloff from the nasty news flow we had been seeing out of China.

Then you have the fact that the VIX got absolutely CRUSHED, headed down to 15 while the VIX futures market is being stubborn and sticking in the 18 – 20 range.

That last part is important. Yes, there are risks coming into the end of the year with fiscal cliff, Fed voodoo, people getting sick (can’t use certain keywords here, but you know what I’m talking about), and China.

Much of that risk is priced into hedging instruments already, and it’s going to take a lot more headline risk for us to get another rollover like we have had recently.

There is one thing… earnings. Mega cap reports earnings this week, and that may have a profound impact on the S&P by a weighting issue. In the near term, that’s the only thing that could drag the market down just from the simple math behind it.

Today, we’ve got one normal trending setup, then we’re going to dumpster dive a bit.

Trade #1: UNP

After holding support at 190, UNP had a straight shot higher and a break to new highs. It’s extended here, and we can start looking for a nice pullback. I want to see a test of the prior resistance level.

Trade Setup

Expected Price: 227.25

Sell to Open UNP 17Dec21 215/210 Put Spread

Tier 1: Enter at 1.04, Exit at 0.36

Tier 2: Enter at 1.456, Exit at 0.74

Tier 3: Enter at 1.872, Exit at 0.99

Stop Out If Close Under 214.89

Trade #2: SNAP

I’ve already got some put spreads sold and I think I’m a bit early. Instead we want to start playing this as the stock approaches the massive support level just under $50.

Trade Setup

Expected Price: 51.21

Sell to Open SNAP 17Dec21 45/40 Put Spread

Tier 1: Enter at 0.95, Exit at 0.26

Tier 2: Enter at 1.33, Exit at 0.59

Tier 3: Enter at 1.71, Exit at 0.78

Stop Out If Close Under 44.89

Trade #3: BIIB

Biogen has done a full round trop from their spike higher. It’s now at the lower end of the support area from the first half of this year, and is a good risk/reward setup to work from.

Trade Setup

Expected Price: 269.53

Sell to Open BIIB 17Dec21 250/245 Put Spread

Tier 1: Enter at 0.95, Exit at 0.26

Tier 2: Enter at 1.33, Exit at 0.59

Tier 3: Enter at 1.71, Exit at 0.78

Stop Out If Close Under 249.89

Large cap is seeing a squeeze over the past few days. It’s a combination of large cap tech being oversold, option dealer adjustments, way too many people selling calls, and a lack of “new” news coming out over the weekend.

Don’t let where we sit discount the past two months’ price action– it has been a hot mess. And odds are, it will continue to be. Headlines aside, this is a very choppy market with high volatility, and for markets to “normalize” to lower vol… well, it takes time for that process to work out. That doesn’t make me super bearish, just neutral.

This time is very tricky for us. The markets have ripped so there aren’t quality pullback plays available right now. On top of that, we’re headed hot into earnings season, which takes a lot of names out of play until after their earnings events.

We’ll focus on a few names where we can plan for pullbacks, where those pullback could hit post-earnings.

Trade #1: HD

Looking for a pullback to the previous breakout level… will use the most recent gap fill as the first tier for entry.

This does have earnings risk involved.

Trade Setup

Expected Price: 343.82

Sell to Open HD 17Dec21 320/315 Put Spread

Tier 1: Enter at 0.82, Exit at 0.1

Tier 2: Enter at 1.148, Exit at 0.36

Tier 3: Enter at 1.476, Exit at 0.48

Stop Out If Close Under 319.89

Trade #2: CF

Another solid breakout. If we get a pullback it will be a great entry, but odds are this sucker shoots to $70 before we get an entry. But if we do, we want to be prepared.

Trade Setup

Expected Price: 55

Sell to Open CF 17Dec21 52.5/50 Put Spread

Tier 1: Enter at 0.7, Exit at 0.39

Tier 2: Enter at 0.98, Exit at 0.67

Tier 3: Enter at 1.26, Exit at 0.91

Stop Out If Close Under 52.39

Trade #3: XLNX

Great breakout in this semi stock. I’m looking for a retest of the breakout area.

Now if earnings comes out and this stock gaps down to 120, then this is a no-trade. But if we see a vanilla pullback through or after its earnings event, then we’ll look to play it.

Trade Setup

Expected Price: 160.86

Sell to Open XLNX 17Dec21 140/135 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 139.89