2nd Trade Update July 19th, 2012 at 9:37am: With AXP down about 2.5% this morning at 56.90 I am closing the second half of the July 57.50/55 Put Spread at 1.45 for a triple.
Action: AXP ($56.90) Sold to close 1/2 July 57.50/55 Put Spread at .90 for a double.
Trade Update July 18th, 2012: AXP reports Q2 earnings after the close and the options market is implying about a 3% move vs the 4 qtr average move of less than 1%. Oddly prior to last year, AXP has been a bit more volatile following earnings reports with moves in 2010 ranging from 2% to 3.70%.
Which leads me to the July Put Spread that I bought (below) last week in AXP when the stock was about $58.50, since then the stock has traded btwn $59 and $57. I was tempted to take some profits last week when I had nearly a double but waited as I thought the broad market was going to help me a bit on this one prior to earnings.
Many readers know that when we have doubles on positions, especially in a short period of time, we like to close half and then play with the houses money so to speak. We are likely to do this when we have the gains and we are looking to a potential catalyst, like earnings, and therefore we take the event risk off of the table.
SO now with AXP to report Q2 in little more than an hour, I am hesitant to hold the Put Spread into earnings, thus risking all the remaining premium that I have left in the spread. With the stock trading at $58.38 I am going to sell half of my position to reduce the risk of losing all of the premium if the stock does not drop below my Break-even level of $57.05 by Friday’s close.
Action: AXP ($58.36) Sold to close 1/2 July 57.50/55 Put Spread at .28 for a .17 loss.
New Trade July 10th, 2012 at 2:28pm: Enis and I had been looking for ways to press the luxury retail short without pressing some of the individual names. AXP trading at a market multiple, with only 5% expected earnings growth this year and a paltry 1.37% dividend seems like a decent way to play with the stock still up almost 24% ytd.
The nail in the coffin for me on this short came last week when a friend told me that if you called American Express and told them you wanted to cancel your Platinum card, or trade down to the crappy Gold Card that they would offer you a $400 “loyalty credit” to keep the shinier card. Fully expecting to move down to the Gold card, I made the call and sure enough, that is what they did, offered me $400 “loyalty credit”. Now I am not sure what the criteria is for the credit, but I can not imagine the company is doing this from a position of strength.
With earnings scheduled for July 17th after the market close, I want to make a near term bearish bet that some of the pain felt by the luxury retailers will be displayed in slowing activity among American Express card holders.
TRADE: AXP ($58.49) Bought the July 57.50 / 55 Put Spread for .45
- Bought 1 July 57.50 Put for .71
- Sold 1 July 55 Put at .26
Break-Even On July Expiration:
- Profits btwn 57.05 and 55, make up to 2.05, with max gain of 2.05 at 55 or lower.
- Losses of up to .45 btwn 57.05 and 57.50, with max loss of .45 at 57.50 or higher.
Original Post July 10th, 2012 from Enis:
International luxury demand is in danger.
We’ve touched on the theme of international weakness multiple times in the past 2 months. Dan has used IBM and NKE put spreads to play international demand weakness. More recently, he initiated the SBUX put spread partly due to their high expected international growth rates going forward.
We don’t like the looks of emerging market demand, especially high-end emerging market demand. Look at the price action in names like TIF (our post about it from May) or COH if you’re excited about luxury demand in emerging markets. My CotD post from 2 weeks ago highlighted the weakness of emerging market economic data.
As usual, this theme got me thinking about potential stocks that might be affected, but had not yet reacted. What about American Express? Sure, the name is about as American as you can get. And American Express has 65% of revenues from the U.S. But where’s the growth? As usual, not from the U.S.
So how has AXP performed vs. luxury retailers like COH and TIF in the past year?
Even COH, which is also gets about 2/3 of its revenues from the U.S., has shown significant weakness in the past 2 months. AXP is a picture of strength in the face of a weakening luxury retail market. Looks like it has some catching up to do.