Trading Diary July 30th – Aug 3rd

by Dan August 5, 2012 5:59 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed or expired in the week that was July 30th to August 3rd:  

Monday July 30th:

Action: AAPL ($595.16) Bought to Close 1 Aug 520 put for .29

New Structure: To be clear I am not initiating this position, this is what I am left with.

LONG AAPL Aug 540/520 Put Spread for a .26 credit.

Dan: The AAPL ratio put spread detailed above set up very nicely into the company’s Fiscal Q3 earnings as I received a small credit for a structure where I could not lose money on Aug expiration unless the most loved company, and defended stock on the planet closed ~17% lower from where I initiated the trade. On Monday with the stock closing in on the level at which I first initiated the trade, I decided to cover one of the short puts, leaving the the Aug 540/520 Put Spread on, but without any risk as I have it on for a credit.  I got a few smart questions from readers asking why bother and very simply I saw no reason for the extra put that I was short to eat up margin in my account for 3 more weeks and to reduce the risk for even the very small chance that the stock gapped lower.

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NEW TRADE: FXI ($34.00) Bought Sept 32 / 30 Put Spread for 0.33


Weakness in the Shanghai Composite has persisted even as global markets have found their footing over the last month.  The Shanghai is still down on the year, and many signs of demand in China (whether commodity prices like iron ore, copper, or steel or commentary from multinationals) point to significant slowing continuing.  The Hang Seng’s strength can be attributed to a better perceived global backdrop, but I am of the view that the Hang Seng is more likely to catch down than the Shanghai is likely to catch up.  For more interesting commentary regarding the recent slow down in China, read this post from the Bronte Capital blog.  Finally, implied vol looked cheap in FXI, and so I used a Sept put spread to play the catch down.

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Tuesday July 31st:

Action: HOG ($43.38) Sold to close Second 1/2 the Aug 45/40 Put Spread at 2.05 for a 1.10 gain, which is the exact level I sold the first half of the position at.
NEW TRADE: HOG ($43.27 ) Bought Sept 41/37 Put Spread for .98

Dan: In the hours prior to the company’s Q2 report, I wanted to reduce the risk of having a binary set up for the trade that had on in Aug that had already been a double.  We are trying very hard in names that have a tendency to be volatile around earnings to avoid situations where if we are wrong that the premium we own gets wiped out on just one move.  Thus I decided to take the gains in HOG and roll to another bearish bet out and down a bit playing for a larger move over a longer period of time and reducing the chances of the Aug spread not having enough time to be right, if the initial move was wrong.

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Wednesday Aug 1st:

Action: Sold to close Half of HOG ($39) Sept 41/37 Put Spread at 2.00 for a 1.02 gain.

Dan: With HOG missing on revenues, but guiding the balance of the year in line the stock initially appeared to have a muted move lower on the opening, but this quickly gave way to some fairly whacky trading seeing the stock down more than 10% at one point prior to 11am.  I chose to put a limit order to sell half of my positon for a double, thus taking my cost off of the table. In the crazy trading that morning, which was later revealed to be associated with the electronic trading mishap at Knight Securities, I got filled and I am now playing with the houses money so to speak on the balance of the position.

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TRADE:  INTC ($25.94) Bought the Sept 25/23/21 Put fly for .28

Dan: For many very specific fundamental reasons, none of which include INTC’s solid balance sheet, massive stock buyback, stellar dividend yield and well below market valuation, I decided to buy a low premium Put Fly in Sept that I think offers a great risk/reward way to play for the stock to go back down on the year by Sept expiration.  As I look ahead over the next 3-6 weeks I see many potentially negative data points as it relates to the health of the PC market even in the face of back to school sales and a supposed PC upgrade cycle predicated on the release of Windows8 from MSFT.  Flys can be expensive to enter and exit if the trade is a loser or just a small winner, so in this instance I really need to be right on direction to make money on this trade, but as I have said probably more than 100x on the site, in an instance like this, I would only put this trade on if I thought I had a better than normal chance of success but also with the knowledge that if I am wrong I will not have to worry abou the exit, as I should be risking what I am willing to lose.

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Thursday Aug 2nd:

Trade: CSCO ($15.76) Bought the Sept 15/13 Put Spread for .35

Dan:  Buying a Sept Put Spread in CSCO on a day where technology shares seem to have a healthy bid was a fairly easy decision regardless of my mediocre conviction level on the trade.  The strength of tech shares will in my opinion have little to do with the success or failure of this trade. Investors continue to punish the weak and poor positioned companies and reward those with strong product cycles with identifiable catalysts.   The likelihood that CSCO will be able to signal a turnaround on their fiscal Q4 earnings report on Aug 15th is not very good, and guidance that points to continued stagnation will likely see the stock make a new 52 week low as investors search for growth and or yield.  The one thing aside from a guide up that could render this trade worthless would be the company greatly increasing their dividend yield from the current approximate 2% to at least 3.5 or 4%.

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Action: Sold to close LNKD ($92.50) Aug 80 / 60 1×2 put spread at $2.15 for a $0.60 loss

Enis: With LNKD reporting earnings after the close on Thursday, and LNKD stock selling off almost 15% in the 2 days leading up to the earnings report, I wanted to salvage the premium in this August trade before the earnings report.  Since my original intention was never to hold the LNKD position as an earnings bet, I did not want to take my chances on a binary bet when the probability of my structure making money on the event was relatively low.  I am still not positive on the stock, and after the earnings rip, I might look to re-initiate a new position to play for weakness.  In that case though, I will try to play farther out expiries again and give myself more time to maturity.

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Friday Aug 3rd:


Action: Sold to close ORLY ($85.60) Aug 90 / 85 put spread at $3.00 for a $2.50 gain

Enis: ORLY has shown significant weakness relative to the market ever since its earnings report on July 25th.  With the broader market’s rally on Friday, I wanted to lock in some premium from one of the few winning August trades because most of my other August positions lost a good chunk of premium on Friday’s rally.  I was badly thrown off by the way Friday played out after anticipating weakness in the market after the policymaker meetings (given the broader bearish backdrop that I felt had been developing over the last couple months).  In previous instances in my trading career where I’ve been badly wrong-footed, I generally take a step back and re-assess.  That was the main reason I took my ORLY gains, and might take off some of the other August trades if they regain some premium in the next week.

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