A bounce is imminent, as volatility spikes on Tuesday. Starting off the premarket session in the green, many of the most beaten down stocks are green. That said, we’ll be looking for opportunities to buy the dip and sell some premium to boot.
Baozun (BZUN) Trade
BZUN has been showing signs of institutional buying. Volume has been above average and all oscillators are heading higher, suggesting today could be a continuation day. MACD and stochastic have a lot of room to run to the upside before overheating.
BZUN is bouncing around this morning trading roughly 29.90 (+/-) in the pre-market session (+0.38 +/-). We started a swing yesterday and will likely add on a break above Tuesday’s high. First target is 61.8% Fibonacci (32.00 +/-) VBP resistance.
Alibaba (BABA) Trade
BABA will likely follow the majority of Chinese Stocks today. With price action closing at the 9ema, the stock is currently producing lower highs and higher lows in a pennant or triangle pattern. RSI is pointing lower, though pre-market session price action is suggesting a gap up. BABA tends to fade in the first 30-60 minutes, so be ready for it.
Should BABA fade this morning, it may present an opportunity. We are considering a Bull Put credit spread. With IV Rank at 51%, we would look to “sell” premium, with Thursday being the optimum day for entry. This is due to the unique theta from Thursday evening into the weekend. We would consider next weeks expiry.
Each option spread would yield $80.00 credit. We are considering 10. Maximum profit would equal $800.00 (minus commission) or $737.50. Max loss is the width of the strike minus the premium received.
We are also considering a long position in Alibaba (BABA) as buyers continue picking up shares pre-market. (+0.62)
Since the “Bull Put Credit Spread” anticipates a bullish move into next week, we can also take the spread on Thursday evening to reap additional profits as we sell premium. If price action climbs today, we will adjust the strikes higher in the above example.
Have a great day,