Trading Diary Aug 20th – 24th

by Dan August 26, 2012 5:11 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed or expired in the week that was Aug 20th to August 24th:  

Monday Aug 20th:

TRADE: BBY ($18.70) Bought Sept / Dec 22 Call Calendar for .62

Dan:  After previewing their quarterly report, we came to the conclusion that BBY for the time being will not trade as an earnings story, but rather a “special situation” as investors weigh the potential for the founder and largest shareholder of the beleaguered electronics retailer to pull off his proposed bid to take the company private.  Sept vol seemed unusually rich to longer dated options and we felt that selling the implied move in Sept to the upside, but using the proceeds to buy longer dated calls in Dec made sense as it will take some time to get more clarity on the potential bid.  With the stock down about 7.5% since putting the trade on Monday, the calendar is actually unchanged, I will look to cover the Sept 22 Puts when they are offered at a few cents and look to spread the Dec 22 Calls.  Read Post here and update here.


Tuesday Aug 21st:

TRADE: DELL (12.40) Bought the Sept / Oct 11 Put Calendar for .09

Dan:  After previewing DELL’s quarterly report, it became fairly apparent to me that even with expectations low, the likelihood of an upside surprise given the PC supply chain data points of the last 2 months wasn’t great.  Calendars were very attractive due to the vol differential btwn Sept and Oct options, and frankly they were dollar cheap.  With DELL closing down about 10% on the week, the Put Calendar ended up being up more than 2x what I paid.  I will now look to cover Sept 11 puts and possibly sell some Oct 10 Puts agains the Oct 11 puts that I own and further define my risk. Read here.


Wednesday Aug 22nd:

TRADE: MSFT ($30.57) Bought Oct 30/28 Put Spread for .48

Dan:  On the heals of disappointing quarterly reports and forward guidance from HPQ and DELL, it is becoming increasingly apparent that PC sales are in a less than stellar spot and sales are soft in front of MSFT’s late Oct upgrade of Windows and the ever increasing cannibalization of PC sales by tablets.  Additionally the price action of MSFT on a week that saw new highs in the SPX was less than stellar as the stock sits about 7.5% from the 52 week highs in March.  I chose OCT as it will include their next quarterly earnings report and will also include reviews of Windows8, which from what I can gather may be a bit disappointing. Read here.


Thursday Aug 23rd:

TRADE: SBUX ($48.04) Bought Sept 47 Put for .90

Dan:  SBUX checks a lot of boxes as it realtes to names we want to be short heading into the last 4 months of the  year. We are firmly in the camp that Europe is at the precipice of a recession, that China’s slowdown is likely to be more pronounced than most bulls think and that the likelihood that the U.S. is able to de-couple from this weakness isn’t great.  SBUX expects to get much of it’s near term growth from Europe and China, while trying to enter into new product categories in the U.S., if MCD and CMG’s recent results are any indication of the health of fast food sales in the aforementioned regions, SBUX with it’s premium valuation could face significant pressure if the company is not able to stem recent sales softness.  Also it is attractive to us from a technical perspective to short stocks that were considered market leaders in the latest bull run, but have recently broken down on fundamental news.  I chose to buy Sept because this is really a market call and I am looking for a broad market sell off in the weeks to come and a name like SBUX should trade in lock step to the downside with the SPX, or worse.  Also chose to Buy outright puts as the implied vol was relatively cheap and I will look to sell a lower strike put against the Sept 47s once the stock starts to head lower. Read here.


TRADE: CRM ($146.50) Bought Oct 130 / 110 put spread for $3.60

Enis:   The post-earnings release price action on Thursday evening was what I would have expected after a slight earnings beat, but revised guidance lower for Q3.  The revenue beats and better guidance sound nice, but as I said in my post, CRM’s issue is that its earnings growth has been stagnant for 2 years now, even while revenues have grown.  While I am already skeptical of the argument made in favor of AMZN’s long-term investment in the name of future earnings, I can at least see some rationale for the “building for the future” case in AMZN’s low current earnings.  However, CRM’s spending increases as revenue grows are much more short-term in nature.  With such a rich valuation, no earnings growth would normally be severely penalized.  Alas, CRM’s bounce right after the open on Friday shows that the current investor base disagrees with me.  In any case, I still view CRM as particularly ripe for a selloff if the broader market sentiment just shifts back to neutral.  But on any selloff, I’m likely going to take any profits on the Oct put spread more quickly than if the stock had not held up so well after a tepid report.  Read here.


Friday Aug 24th:

TRADE: XLK ($30.55) Bought Sept 30/29 Put Spread for .20

Dan:  This trade is just a simple defined risk short term bet that the biggest of big cap tech takes a little breather as we head into what could be an interesting pre-announcement season as we head into the final month of Q3.  But most importantly this trade was conceived to play for a near term pullback in AAPL as the stock has the potential to sell off on any disappointment about expected product announcements in the weeks to come.  AAPL makes up 20.6% of the XLK, and the top 5 weighted names make up nearly 50% of the entire etf.  Paying .20 to possibly make .80 if the etf is down 5% in the next 4 weeks seems like a very reasonably risk/reward especially as AAPL’s recent 15% run is masking broader weakness in the tech space.  Read here.