Trading Diary Aug 6th – Aug 10th

by Dan August 12, 2012 7:56 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed or expired in the week that was Aug 6th to August 10th:  

Monday Aug. 6th:

ACTION: CSCO (16.80) Sept 13 Put Buy to close for .03.  Now I essentially own the Sept 15 Puts for .38


New Trade: CSCO (16.80) Bought to open the Sept 16 Put for .42, I will look to spread this if and when the stock retreats into earnings.

Dan:  I went over this trade a couple times this week, adding to what I called a “low conviction” trade from the get go, when it was a loser only compounded my problems.  In hindsight I realize that now, but some guy on Twitter had the following to say to me:

Funny thing is, and it is kind of funny to me, I don’t remember asking for a fan section or cheerleaders.  The tweet gives me the opportunity to drive home one of the key purposes of the site to you the reader, with little regard for the ‘Twittersphere”, we don’t exist for any higher powers; investors, clients, social media or the financial press, exists as an educational tool for those interested in the trading stocks/options and looking for an alternative to some of the crap that we think exists attempting to lure unsuspecting traders with their promises of most every trade being HIGH CONVICTION and or highly profitable.

Thats not what we do here, we detail the thought process that leads to our trades, debate different structures, and then review why they worked or didn’t………all with an eye towards the reader learning from our success and or failure.  So Mr. Forrest I sincerely apologize for making “rooting” for us so difficult, I am sure there are plenty of traders on the social web that will offer much less transparency on their trades while supplying a great deal more conviction.  Read trade rundown here.


Tuesday Aug 7th:

Prior to DIS’s Q2 earnings, we previewed the qtr (read here) and defensive strategies for longs heading into an qtr that saw a higher than usual implied move with the stock near all time highs.  The report ended up being a non-event for the stock, but we think where implied vol where it is, defense may be the best form of offensive if your have big gains in names like DIS.

On a broader note, we have been more selective about trade ideas this week as we do not want to put a lot of premium at risk in case we have to weather a quiet August ahead of more fireworks that we expect this fall.  The broader economic trends still seem tilted negatively, but the markets are not yet reacting.  We have focused on keeping powder dry to play more aggressively when both economic trends and markets align.

Wednesday Aug 8th:

Trade: BAC ($7.72) Bought 1 of the Sept 8 call and 2 of the Sept 7 Puts for $0.47 total

Enis:  As the VIX approached the 15 handle again this week, I wanted to look for a cheap way to play long volatility on the market, but in a single stock that gave me better risk/reward than just playing the purely index option structures.  I have obviously been surprised by the nature of the recent rally, particularly in the investment banking sector, which I think has the most obvious headwinds in the second half of the year, both from Europe and from capital markets secular trends.  But I did not want to make a one-way bet after my recent misses, so I chose to focus on a BAC implied volatility play.  BAC implied volatility is at 1 year lows.  September offers more than 1 month until expiry and allows me to be more patient as the options won’t start decaying quickly until the last week of August.  Read post here.

TRADE: MNST ($67.37) Bought the Aug / Sept 57.50 Put Spread for .70

Dan: This is a stock we have loved to hate, we have never gotten the valuation and believe this product category is about to get very crowded.  Given the massive implied move, we wanted to take advantage of the what amounted to very expensive weekly options and buy the longer dated below the implied move as we saw greater potential for a break-down. Read trade and preview here.


Thursday Aug 9th:

Prior to JWN’s Q2 earnings release we took a look at some potential bearish trade structures (read here) in Oct and Jan.  We decided not to pull the trigger as we did not have enough conviction in the short-term earnings thesis (particularly after Macy’s strong report).  However, JWN is on our radar for a future trade.  The domestic consumer story has shown some signs of cracking this earnings season.  Any further weakness will have a quick impact on JWN stock as it has stalled near 5 year highs.


Friday Aug 10th:

Action:  MNST ($56.80) Sold to Close Aug/Sept 57.50 Put Calendar at 1.85 for a 1.15 gain

Dan: Not only did the company miss estimates and guide down, but a day after their report the company admitted to receiving a subpoena from an undisclosed state attorney general and the stock was down at our strikes after the previous days 10% decline.  With fear of this winner getting away from us we decided to take the profit and move on, but this stock will be on our focus list to short on rallies. Read here.

TRADE: YUM ($66.66) Bought Oct 62.50 / 55 Put Spread for 1.12

Dan: Sticking with our bearish U.S. multinational theme, YUM and it’s near 43% revenue exposure to China, sticks out like a sore thumb to us, especially given some of the high profile sales misses by competitors MCD and CMG both here and abroad.  Read here