Trading Diary Sept 10th – 14th

by Dan September 16, 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 Sept 10th to Sept 14th:  

Monday Sept 10th:

Hypothetical Hedge: against AAPL long (stock ref $675) Buy Sept14th weekly 665 Puts for $5.50

Dan:  With 2.5 days to AAPL’s highly anticipated iPhone 5 launch, and the stock less than 2% from all time highs, the weekly puts appeared to be dollar cheap, as 1.5% out of the money puts cost less than 1% of the underlying stock price.  Given the fact the stock traded in a 7% range last year on the day of the iPhone 4s release, these puts could have served as a decent risk management tool heading into the potentially volatile event.  At the start of the week, implied vol for near the money Puts were in the mid 30s, by the time of the event, the implied vol was up nearly 10 points.  This move in vol offered plenty of opportunities to take profits on the puts, or beter yet keep them on and use the pumped vol to turn the puts you own into a vertical put spread those lessening the cost of protection.  While the stock closed higher on the week at new highs, these puts for long holders were a cheap form of protection in the event of disappointment.  Read here


Tuesday Sept 11th:

TRADE: AIG ($33.15) Bought the Jan 35/40 Call Spread for 1.17

Dan:  The U.S. treasury announced and brought a massive secondary ($18 billion or 553 million shares) in less than 24 hours, thus lessening the their stake considerably to only 317 million shares, which many investors expect them to be rid of by the year end given their accelerated selling schedule of late.  The fact that the stock was only trading down a couple % the day of the deal lead me to believe that there was far more demand for the shares and that the final sale by the feds could serve as a launch pad for the stock.  By the end of the week, the stock was at my long strike, and up about 5.5% from the point at which I initiated the spread.  I have this one right where I want it, and will likely just sit on my hands waiting for the treasury’s final sale in Nov or Dec.  Read here



Wednesday Sept 12th:

Potential Trade: AAPL ($657.50) Bought the Sept22nd 610/605 1×2 Put Spread for a .50 Credit

Dan: As I was watching the liveBlogging of the iPhone 5 event, I was generally unexcited about the offering, but the stock was only moving in a couple point range showing far less volatility than one might have expected.  As I mentioned above, short dated options in AAPL had seen a considerable vol spike and I was look for a very small risk, small reward trade to play what I thought would be a most definite decline in implied vol once the event was over.  This out of the money ratio spread that I detailed for a credit would have been a good way to take in a little premium if I could have gotten it off for a reasonable amount of premium vs the width of the spread.  In this instance I was about a nickel away from getting it off for .50 credit.  Read here

Thursday Sept 13th:

TRADE: SDS ($13.30) Bought the Sept22nd (next week) 13.50 Calls for .16

Dan:  With the Fed’s announcement of QE3 on the tape so to speak, and the almost 5% rally in the last couple weeks, the double short inverse S&P 500 etf, SDS, specifically the Sept 13.50 calls, appeared to be cheap after such a swift run up and given the potential of using leverage upon leverage, it wouldn’t take much of a sell off to break-even on these puts..  With the etf trading 13.30, I bought the calls for .16, my break-even was 13.66 on the upside, that is about 2.5% in the stock, but only 1.25% in the S&P.  This seemed like low premium, fairly non-committal way to play for a bit of a short term re-tracement.  Read here

Name that Trade – BIDU: Evaluating Calendars

Enis:  BIDU has been a fantastic stock with amazingly high levels of implied vol for years now.  The company fascinates investors given it’s likeness to GOOG, and it’s monopoly in web search in China.  The stock has had some recent underperformance given the entrant of a small web competitor into search, but the jury is still out whether this upstart, QIHU will really have any impact on BIDU’s marketshare.  The recent movement has obviously manifested itself in the implied vol of the stock, which could present opportunities for calendar spreads as we head into their Q3 earnings in Oct.vvRead here


Friday Sept 14th: 

Trade: WFC ($36.04) Bought Jan 33 / 38 Risk Reversal for .05

Dan:  We have all heard the expression, Slow and Steady Wins the Race, well that is what it going on with WFC this year.  While many money-center banks have seen there shares up 50% on the year, and then flat and now heading back up in a straight line, WFC has been a massive relative strength gainer with far less volatility.  Banks like WFC should benefit in the next few months from the tens of billions of mbs that the Fed plans to buy, and this is a name where short puts, even at lofty levels in the market seems like relatively safe way to finance the purchase of upside calls.  I want to have long exposure in names like this and AIG and start to re-short some of the banks more exposed to the very weak trends in capital markets and investment banking.  Read here

NKE: Took at look at Implied Vol heading into their Sept 27th Q1 report

Dan:  The stock caught my eye as it was massively under-performing the broad market, and it had been a name I had been leaning short in June.  Heading into their upcoming Q1 report, I wanted to take a quick look at implied vol in the name, and place the stock on my radar as we get closer to the report, as I suspect the lower it goes the more likely there will be something too do.  Read here