Trading Diary Aug 13th – 17th

by Dan August 19, 2012 9:03 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed or expired in the week that was Aug 13th to August 17th:  

Monday Aug 13th:

TRADE: GRPN ($7.65) Bought the Jan13 6 / 4 1×2 put spread for $0.21

Enis:  My goal in looking for a potential trade ahead of GRPN earnings was to find a structure that offered favorable risk/reward regardless of whether GRPN ended up higher or lower after earnings.  As a result, I chose the Jan13 1×2 put spread, which was flat delta at initiation.  The main benefit was that it would likely be profitable in 2 of 3 earnings scearios (flat or down), while only losing 0.10 or so on  large up move in the stock.  In reality, the stock moved in a favorable manner after earnings, down more than 25%, landing between the long and short put strikes on the trade.  Since it is a Jan13 expiry trade, and since Jan13 implied vol stayed elevated as the stock continued selling off the balance of the week, my 0.50 offer was not filled.  But there is little need to hit the bid as long as the stock stays above the short strike at $4.  Read here

TRADE: GRPN ($7.65) Bought the Aug / Sept 10 Call Spread for .25

Dan:  After I do a bit of work on a name in front of an event, if I don’t have a ton of conviction either way, sometimes (as I did here) I will look for a low premium way to play one of the possible scenarios.  This trade needed to get the direction right just a little to work, and that was up, which was obviously dead wrong.  The Aug Calls expired worthless, and the Sept 10 calls are basically worthless.  Barring some miracle these will also expire worthless on Sept expiration.   Read here & Update here



Tuesday Aug 14th:

TRADE: TIF ($59.45) Bought the Nov 55 / 50 Put Spread for $1.21

Enis:  TIF is a stock that broke down from long-term $60 support in May after weak Asian sales broke the growth story for the stock.  While the general market has broadly recovered, I have kept an eye on TIF ever since Dan reviewed the micro story back on that breakdown in May.  With the stock back near the $60 level, but China continuing to show many signs of weakness, particularly in luxury sales, I wanted to use the strength for a longer-term short biased trade.  The November put spread will give me until late in the year for sentiment to turn negative again on continued fundamental weakness.  Read here


Wednesday Aug 15th:

No trades were executed on Wednesday or Thursday, though we did look at a number of potential trades.  We have looked at potential trades with a higher bar for initiation of long premium ideas given the very slow nature of the market of the past few weeks, but little point in putting on short premium trades with volatility so low, and hence risk/reward so poor.  So we are acting with an abundance of patience.

Thursday Aug 16th:


Friday Aug 17th:

ACTION: GME (18.40) Bought the Oct 13 put to close at 0.10, for a 0.33 gain, still long the Oct 17 put

CC:  GME has caught a bid on its earnings and dividend raise. We’re going to take this opportunity to close the Oct 13 puts at .10 (originally sold at .43) There’s no reason to leave those open as 10c is not enough premium to wait around for. This leaves the Oct 17 puts. We’ll look to close or spread those puts on any weakness in the stock.  Read here

ACTION: BAC (8.05) Sold the Sept 8 call at 0.31 for a 0.08 gain, stay long 2 Sept 7 puts

Enis:  One of my main reasons for selling out of the calls was to reduce my risk on the trade going forward in a very slow environment.  I initially put 0.47 of premium into this long Sept volatility trade in BAC, and now only have 0.16 on the table with 5 weeks to expiry.  I am now rooting for a directional move lower, but at least I am much less exposed to time decay after selling my Sept 8 call out.  Read here

ACTION: JPM (36.87) Bought the Aug 35 / 37 call spread to close at 1.85, for a 1.20 loss

Enis:  Since I did not expect the broader market to match its high for the year, my JPM short call spread trade from early July has ended up as a loser on expiry today.  The main issue for the past week was that the stock has been generally trading above $37, making it hard for me to exit the trade without close to a max loss.  The stock looked like it was going to pin $37 midday through the morning, so I closed out of the position in the morning to salvage the little time value still remaining:  Read here

TRADE: VIX (13.55) Bought the Sept 20/25/30  Call Butterfly for .45

Dan: With just 2 days my Aug VIX 20/25 Call Spread expiring and the spot VIX making 5 year lows, but more importantly the whole VIX futres curve coming in fairly hard last week, I wanted to look for a low premium way to play for a move back above 20 in the next 5 weeks.  The market has just gotten too complacent in my opinion, Call Fly has a good risk reward if, and it is a big IF we get a volatility spike back to the levels seen just a few weeks ago by Sept 19th.  Read here

Added to Aug 10th TRADE: YUM ($66.30) Bought Oct 62.50 / 55 Put Spread for 1.10

Dan:  I added to this position on Friday the 17th, a week after first initiating. The stock did not rally with the broad market last week, trading more in line with the Shanghai Comp that gave back all of the previous week’s gains and sits at 3 year lows.  I want to focus on names like YUM that have 43% revenue exposure to China, especially when they appear to be one of the very few fast food chains not being hurt at the moment (MCD saw sales down in Asia, Europe and North America last month and CMG seeing signs of decelerating growth in the U.S.).  Read here


Expired Trades:

Dan: Last month was probably one of my worst months directionally in a long time.  Heading into July and August, I was fairly steadfast in the belief that the U.S. corporate earnings would generally disappoint, and that the U.S. Fed and the ECB would also disappoint investors expectations on the stimulus front.  I think it is safe to say that we got a bit of a mixed bag from both, and at this point the jury is still out, BUT what I didn’t anticipate is how quickly sentiment would, or more importantly could turn in such a short period of time.  The list of expired trades below is like taking a little trip with the Ghost of Christmas Past, it ain’t fun, but it has to be done if we are going to learn from our recent mistakes.  We are just reviewing the trades that expired worthless in the section, we update daily and weekly in this space trades that we closed.

EXPIRED:  AAPL  ($601) Bought the Aug 540 / 520 1×2 Put Spread for a .55 Credit

This trade actually expired for a .26 gain, us long premium leaning lads don’t have that happen much!  Read here

EXPIRED:  C ($26.71) Bought Aug 26 / 23 Put Spread for .65

This was frustrating, I got greedy, I had a double at one point in this trade early on and didn’t take half off.  This trade should not have been a total loser if I had stuck to my playbook. Read here

I will add that bank Stocks obviously caught a bit of a bid last month helping the broad market bounce more than 10% off of the June lows, and the continued participation by this sector will be important to a sustained rally into the fourth quarter.  My sense is that the challenged earnings picture, or the next crisis and/or scandal will likely cause another test of the June lows for the beleaguered bank stocks before the year is out.  Some might say my persistence looks more like stubbornness.

EXPIRED:  INTC  Bought the July / Aug  24 Put Spread for .22

Read here

EXPIRED:  QQQ $63.93 Bought the Aug 63/60 Put Spread for .70

I was of the strong belief heading into earnings season that tech earnings were generally going to suck.  While they didn’t totally suck, they were ok in my opinion, but the strength in the sector over the last 6 weeks had more to do with the defensive nature of most large caps than the quality of their Q2 earnings and guidance for Q3, oh and AAPL’s 14% rally off the lows post earnings probably had something to do with the strength in the QQQ. Read here

EXPIRED:  XOM ($84.75) Bought Aug 82.50 / 77.50 Put Spread for .95

Short oil stocks was fitting with our theme of slower global growth, but the small signs of life that investors started to feel over the last few weeks has caused oil and oil stocks a like to regain most of the losses sustained since early April.  Read here


Enis:  As I’ve mentioned a couple times in the past 2 weeks, my management of my expiries over the last month was poorly done since I ended up with too many positions expiring in August that overly exposed me to the last 3 weeks’ rally.  I originally posted about this issue in this post on August 6th, and revisited the importance of this lesson in this post on Friday morning.  Here is a list of my trades that expired worthless on Friday:

EXPIRED: Half of CAT Aug 85 / 75 put spread for 2.25

The other half was sold at 4.60.  This trade was actually managed well and ended with a slight gain.

Read here

EXPIRED: JPM Aug 36 puts for 2.24

This was another reminder of why I normally do not double down.

Read here

EXPIRED: OXY Aug 82.5 / 77.5 put spread for 1.25

Read here

EXPIRED: MS Aug 13 / 11 put spread for 0.30

This was my most poorly managed trade of the whole group.  It was at one time almost a triple after the stock sold off after earnings, and I should have certainly sold at least half.

Read here

EXPIRED: AAPL Aug 555 / 535 put spread for 4.25

AAPL has been a one-way train all year, and one disappointing earnings report was obviously not enough to change that.

Read here

EXPIRED: AMZN Jul 27th / Aug 195 put calendar for 1.30

If I had not expected broader market weakness, I would have exited this trade for a loss of about half the premium the morning after the earnings report when the stock was higher.  I thought the market would show more weakness and provide a better exit for my Aug 195 puts later on, but that proved to be the wrong expectation.

Read here

EXPIRED: LEN Aug 29 / 24 put spread for 0.60

Another poorly managed trade where I had almost a double within a week of initiation, and did not take off some of the trade because I expected broader market weakness.

Read here