Trading Diary: July 2 – July 6th

by Dan July 8, 2012 7:38 pm • Commentary

Heading into last week, in what would be just 3.5 days of trading in the holiday shortened week here in the U.S., equities the world over seemed poised to continue their upward bias following the EU summit, in a week that would be marked by low volume and expected easing from the ECB and the BOE.  The 25 day chart of the SPX is kind of interesting to me as it incorporates a fairly volatile June that saw an almost 7.5% range in the SPX, and the VIX that ticked above 27 at the start of the month, only to close the month a little shy of 17.  All of that is obviously a bit backward looking, and when you take into account the quick reversal in sentiment, and the heightened anticipation into many events (Greek elections, FOMC, EU Summit) to start the month, coupled with Vol spiking, the set up did not bode well for Shorts.

But that was last month, and now the main event is going to be corporate earnings, and if they continue to be weak (PG, TIF, NKE & F to name a few), market participants may stop calling most of the recent economic data merely weak, and start thinking about an all out stall of the recovery that has been in place since Q1 2009, and dare I say it, start thinking about a recession.

Make no mistake about it, 131o or so is the last line of defense before we see a re-test of the early June lows at about 1264, and from purely a technical level we will be keeping a close eye on it. Five times since the market made a near term bottom on June 4th has the SPX bounced off of the 1310 level, there is no real support btwn that and about 2% lower….obviously as of Friday’s close of 1354 we are a bit away from both levels, but it would take much to get us going in that direction as we have a few fairly important earnings announcements from the likes of AA, GOOG, JPM & WFC that could serve as catalysts.

25 day SPX chart from Bloomberg


Last week, our trading was sparse, but our conviction on the short side remains, many of the shorts we initiated prior to the melt up post EU summit are back in play, and we are trying to hold July premium and look to initiate new trades in Aug or Sept.  Here is a quick recap of all of the trades that we initiated, closed or expired in the week that was July 2nd to July 6th:  

Monday July 2nd, 2012 

Enis and I both wanted to fade the massive move in Crude oil over the prior few days and both initiated shorts in 2 different integrated oil companies.  These trades will be interesting to watch, regardless of the price of crude as both XOM and OXY were trading about $85 and we chose Put Spreads of the same expiration, and of the same strikes.  What will be educational for some readers to watch will be how OXY’s increased volatility, which resulted in a higher premium outlay will affect profitability of the Put Spread vs that of XOM.

Dan’s Trade: XOM ($84.75) Bought Aug 82.50 / 77.50 Put Spread for .95


Enis’s Trade: OXY ($85) Bought Aug 82.50 / 77.50 Put Spread for 1.25


Tuesday July 3rd, 2012: 

With GOOG and MSFT both recently announcing tablets to compete with AAPL‘s iPad and AMZN‘s Kindle Fire, I am hard pressed to think that the coming PC cannibalization will be kind to chipmakers like INTC that seem to be struggling with design wins in the category.  Additionally, bulls point to the supposed impending “PC upgrade cycle” spurned by Windows 8 from MSFT in OCT that is going to lift sagging PC sales.  I don’t buy the notion of PC upgrade cycles, I bet most people who tap on their pc to see what version of Windows that they are running will likely find that it is not the last version MSFT introduced.  The point is, while MSFT is hailing Win8 as huge step forward, it is likely to be, and PC buyers have not be holding out for the next genius product from the genius innovators and marketers at MSFT.

In an effort to get some low premium short exposure in INTC, I bought a very narrow put spread in July that will capture INTC’s Q2 earnings.  Q2 which the company had guided lower when they reported Q1 in April, will likely disappoint, and if the company guides below the street for Q3 the stock is likely to head back towards massive support at $24.

 TRADE: INTC ($26.82) Bought the July 26/25 Put Spread for .18

As I said in the post, I will be doing a deeper dive on the name prior to their Q2 report on July 17th, and will likely  look to lengthen the duration of the trade, and widen out the strikes playing for a bigger move over the increased time period.


Friday July 6th, 2012:

JPM has had a bit of a wild ride over the last 2 months, the stock and its CEO have gone from being  “the one eyed king in the land of the blind” to well, just being one of the bling, maybe that squirrel will find a nut soon, but Enis ain’t betting on it.  He wants to press his short, he is already long Put premium in July and Aug, but now with vols a bit elevated over the last week, he sold a Call Spread in Aug to get some more exposure to what he feels will be a re-test of the June 4th lows in the weeks to come.

TRADE: JPM ($34.00) Sold the August 35/37 call spread for $0.65  Enis crushing it, well detailing his JPM trade on Options Action on CNBC Friday July 6th: