Too Late for New Longs, But Don’t Want to Short?
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Too Late for New Longs, But Don't Want to Short?

John F. Carter - March 31, 2016

Hey everybody, this is John, and welcome to the free video. What have we got cookin' here?

Well, tomorrow is the last day of the quarter, and you can see that Amazon has had a fantastic run. What's interesting here is if we just kind of look at 2016, kind of where we started, and where we are, it's a lot of kind of getting things back. Kind of marking things up, to make the quarterly statements at least look decent.

I suspect, well, I am very hesitant tomorrow to be long much. I think that once, the idea is that we've had the mark up here, let's put Q1 to bed, the funds can breathe a sigh of relief, and we may see some pent up selling. Part of what we did today was we did turn back positions considerably on Facebook, took profits there. Took profits on Netflix. Just kind of running the gamut, and just kind of keeping things light. I think that Thursday, we could start to see some selling into the close.

Friday, of course, is the first day of a new quarter, and that could either be--it's kind of one or the other. It's either an explosion higher, or a rollover, but at this point, even the indexes are so extended. It's hard for me to get excited about taking new long positions here. So this looks good, right? I think that's strong, that's bullish. I don't necessarily want to short it, but the same time, we're at the top of the channel. That's not where we take new long positions.

Anyway, so that's what we got. So there are some stocks where I think some calls credit spreads make sense. Most notably is REGN, and this is one where it's not, let's see. It's not like there's a ton of volume on this one, so I'm not a big fan of buying calls or buying puts, but they idea of this is to go out 16 days. You can see that the at-the-money call is $12, so just trading sideways over 16 days, that expires worthless, but of course it's also got a bearish setup.

What I did here is I sold that 360 call, and then bought 380-ish protection, so I don't have to tie up a ton of capital on this. This is about a one and a quarter to one risk/reward ratio. Our max profit on this would be $8,160, vs. a max loss of $11,000.

Obviously, you're gonna position size this according to your account size, if you're trading a $20,000 account, you're not gonna do 10 contracts. But this is why I like this. And you can see here that up to 370, it's actually not too much of a hit. But obviously, if we get to that max 380, that that's where it kind of goes.

So what gives me confidence in this trade is that, well, first of all, just as I said, I think the markets in and of themselves are extended, so I'm not crazy about new longs here. But I also like, you know, on a weekly chart, we still have momentum going lower. On a daily chart, momentum is mostly going lower here. This may rotate. But we've got a squeeze setting up on the 195 minute chart. The idea that this would trigger to the short side, and potentially even take REGN to new lows. All we need is that it just chops around down here. And then obviously, if it takes off, that becomes a problem.

But I like the trade. I think it tides well with the markets. I think it ties well with this particular setup. All right? We have a lot to cover in the premium video tonight, tons of correlations to talk about, new trade in TLT, and fun stuff, so let's dive into that. You guys have a good night, and we'll see you at the next update.