Here’s an actionable trade idea for today (that I alluded to last night). I’ve been testing this for a little while now and it’s working exceptionally well with the market conditions we’ve got. Tasty Trade did a segment on Nov 29 regarding buying debit spreads for less than the intrinsic value. When applied to parabolic rises with the objective of a tiny pullback, it can be effective. Plus as a bear play it works quickly, I’m out of these trades in just a couple days. Buying a spread for less than intrinsic covers all types of volatility, and almost eliminates theta burn considerations.
Contrarian Candidates (Don Kaufman’s criteria): Stocks within 2% of all time highs, traded up 3% in last 10 days, + a blowout of a recent expected move, over 2x.
Trade: #PutDebitSpread where long strike is ITM, short strike is OTM, 1:1, pay less than intrinsic value, 50% target, around 30DTE, look for liquidity.
I’ve got a couple of these on where it looks like I’ll get more closes today: HD (3 days old), ETFC (1 day), BBY (1 day), DLTR (1 day)
I’ll report on any more additions today. It’s an easy simple trade with limited risk, little management.
p.s. Last night I called these reversion trades, but they really aren’t. A reversion trade would require a very significant pullback for these stocks. This is really just a rest/consolidation/flag trade on a stock that has been a rocket.
Here’s the TT video: https://www.tastytrade.com/tt/daily_recaps/2017-11-29/episodes/buying-spreads-for-less-than-intrinsic-value-11-29-2017