Here is a quick recap of all of the trades that we initiated, closed or expired in the week that was Sept 24th to Sept 28th:
Monday Sept 24th:
Action: Sell 1 BBY ($17.61) Dec 23 call, to open at $0.50, against the Dec 22 Calls that I already own.
New Position: Long Dec 22 / 23 call spread for $0.12
Dan: Back in mid August, prior to BBY’s Q2 earnings report, I felt the options market was dramatically overpricing the potential for movement on the earnings event, and that any news regarding the founders bid to take the company private would take time to materialize. Selling short dated calls, to buy longer dated calls seemed liked the smart play for those looking to set up for any possible news by year end regarding potential financing for such a transaction. I bought a Sept/Dec 22 Call Spread in hopes of using inflated Sept premium to buy Dec Calls. With Sept expiration come and gone, I found myself just long the Dec 22 calls which I chose to spread and create a tight Call Spread. Read here
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Tuesday Sept 25th:
TRADE: PAYX ($33.67) Bought the Dec 32 / 30 Put Spread for .35
Dan: Here was a situation where I felt the implied move appeared to be too cheap prior to Monday evenings fiscal Q1 earnings report, but after looking at my laundry list of inputs, I just couldn’t settle on a trade that made a ton of sense without any real conviction on direction. But on Tuesday, with the earnings and guidance in the rearview mirror, I decided that given what appeared to a fairly mediocre quarter, specifically the quality of the earnings beat, that I would look to set up for disappoint ment heading into their Q2 report that falls into Dec expiration. If I thought options were cheap in Oct, they only got a tad cheaper post the report for Dec options. This was a good example of where I didn’t feel that just because the move was cheap that I had to make a trade prior to the earnings event. In this instance it made sense to wait. Read here
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Wednesday Sept 26th:
No new trades for Wednesday.
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Thursday Sept 27th:
TRADE: NKE ($95.05) Bought the Oct / Nov 90 put calendar for $0.66
Enis: NKE is one of the few large U.S. multinationals that is down on the year. Their margins, sales, and earnings growth rate have been heading lower in the past 6 months, and investors have moved out of NKE in the process. While the overall trend is lower, the options market offered few good risk/reward opportunities to make a directional bet, as implied volatility had become quite elevated in the past 2 weeks as the earnings date approached. As a results, I chose to do the put calendar to take advantage of the elevated Oct implied vol, and give myself a large range of potential positive outcomes following the report. Read here
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TRADE: YHOO ($16.07) Bought the Jan13 17.5 calls for $0.39
Dan: In my far reaching quest to broaden out my trading book (translation, find some longs!), YHOO seems like a name where the stars could be aligning for a decent trade to the upside. The stock has been stuck in the mud for almost 3 years, at time in which it has had that many CEOs. All of the sudden though, the new CEO (a former GOOG star) is moving forward on plans to make the company smaller, more nimble, and more financially secure by finally grabbing some serious cash out of their Asian assets. There are a handful of events in the coming months that could serve as positive catalysts for the stock, and upside calls appear to be very cheap on a vol basis. I will look to spread these calls on a move in the stock above 17 in the near future. Read here
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Friday Sept 28th:
Action: NKE ($94.35) Sold to close the Oct / Nov 90 Put Calendar at $0.86, for $0.20 profit
Enis: NKE’s move was much less than the 5% being priced in by the options market, and once it became evident that NKE was unlikely to move much more than a couple percent an hour after the open, I decided to sell the put calendar and move on. The put calendar would ideally see the stock move towards the $90 strike, but with the one day gains on the calendar from the collapse in October implied vol (and minimal gains from a move lower in NKE stock), I did not want to have to wait another 4 weeks for the October puts to decay over time. In addition, though the Chinese guidance was poor from NKE, the overall summer results were actually better than I expected, particularly in Europe. All said, the stock moved about 1% lower from where I initiated the put calendar, but I had decent gains from the nature of the trade structure, so I’ll take it. Read here
TRADE: FB ($21.85) Against Long Stock, Buy Jan13 24 / 27 1×2 Call Spread for $0.00 (Even Money)
Dan: FB’s 7% rally on news that they will enter the e-commerce universe in the form of a service that offers users the ability to shop, pay and send gifts to others without leaving the site was fairly encouraging for Bulls who have longed for the company to address claims that the company has no idea how they will monetize their 955 million registered users. I don’t own the stock, but I do own a Nov/Jan 22 Call Calendar Spread in the hope that the stock closes below 22 on Nov expiration and I will look to spread the Jan 22 calls as I want to play for a late year/new year rally in the beleaguered social media stock. I get the question a lot by retail holders, what the hell do I do with this pig? or should I sell it here, buy more, or just sue my broker??? My simple answer is that I wouldn’t buy more here, but I like the idea of looking for zero cost ratio call spreads to juice returns in the event that the stock eventually rallies. Read here
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