Trading Diary: Oct 1st – 5th

by Dan October 7, 2012 7:14 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Oct 1st to Oct 5h:  

Monday Oct 1st:

NEW TRADE: CMI ($92.35) Sell October 90 / 95 call spread at $2.50

Enis:  CMI has been on my radar ever since Chinese weakness first accelerated in the spring.  The stock is near 2 month lows despite the rally in commodities after the central bank party.  My view is that the stock needs a catalyst to turn it around, and though Q3 earnings might not be as bad as expected, until the company actually reports (the week after Oct expiry), traders are going to be nervous to take a shot on the long side on this name.  So I sold an Oct call spread as a way to play the weakness ahead of earnings, without taking the potential turnaround risk on the earnings release.  Read here


Tuesday Oct 2nd:

Action: Buy to Close WFC ($34.70) Jan13 33 Put for 1.07, locking in at least .22 loss.
New Position; Long WFC ($34.70) Jan13 38 Calls for essentially .72 (.22 loss from the puts, the .50 loss of the calls), Break-even now 38.72 on Jan13 Expiration.

Dan:  As I stated in my post Tuesday, I kind of blew this trade from the get go by doing something I don’t normally do; sell puts in a stock near 52 week highs.  I been annoyed with my initial entry point on the put sale almost from the get go, and with the stock working against me almost since the outset I decided to cover the put and just remain long the call, thus defining my risk.  The stock has recovered a bit since Tuesday, so my trade management was poor.  At this point I am just long the Jan 38 calls, and with the stock almost back to the point at which I initiated the position I will look to sell a higher strike call if and when the stock rallies to help my break-even on the trade.  Read here

NEW TRADE: XLY ($46.85) Bought Nov 46/44 Put Spread for .40

Dan:  Recent disappointing results from NKE, BBBY and Burberry’s in the UK, lead me to believe that the disappointment at the mid to high end of the consumer spectrum could be fairly challenged both here and abroad, and I wanted to look for a way that gave me some bearish consumer discretionary exposure through the lion’s share of Q3 earnings season.  This spread offered a 4 to 1 payout on a down 6% move btwn now and Nov expiration, I like the risk/reward rather than trying to pick too many individual losers.  Read here


Wednesday Oct 3rd:

No New Trades or Actions


Thursday Oct 4th:

Action: Sold half of AIG ($34.90) Jan13 35 / 40 call spread at $1.60 for $0.43 gain, leave other half long

Dan:  I fully expect AIG to be a fairly volatile stock for the balance of the year as investors anticipate a handful of catalysts both potentially positive and negative.  My entry point and choice of strikes on this trade were pretty decent and I will look to trade around this position as it moves on both sides of my long strike.  I will look to add back the other half of this position on any weakness, possibly into the final sale by the U.S. Treasury of their stake in the company.  Read here

NEW TRADE: WYNN ($113.20) Bought Oct / Nov 105 Put Calendar for $1.40

Enis:  The Macau gaming revenues number in September was the second lowest of the year.  WYNN is essentially a Macau-heavy company, with 75% of the company’s revenues coming from that little Asian island.  With Chinese economic trends yet to turn, WYNN could have some trouble on their Q3 earnings report and outlook.  But the stock has had low realized vol recently, so the calendar is a structure that gives me some short delta into earnings, without having to pay too much premium upfront.  Once Oct expires, I might reconsider the outright Nov puts depending on where the stock ends up.  Read here


Friday Oct 5th:

NEW TRADE: JPM ($41.96) Bought the Oct / Nov 41 Put Calendar for .48

Dan:  Heading into earnings season next week, Friday could hold 2 fairly important reports by JPM and WFC that could set the tone for the balance of the sector.  It is fairly well known that trading revenues and investment banking were quite weak in the quarter, what is not well known is how these 2 banks, fairly levered to U.S. housing and subsequent loan generation/maintenance are fairing, and how that performance is offsetting capital market weakness.  My sense is that there will not be any huge surprises and the stocks (particularly JPM) will likely underperform the implied moves.  I initiated a quarter position of a Put Calendar as I want to better chose my strikes closer to the event, but essentially I want to own Nov puts in JPM for what I feel could be a volatile month, and sell the implied move for earnings to help finance.  Read here

Enis:  NFLX “Name That Trade”.  This was a discussion following up Thursday’s CotD about the ramp in NFLX implied volatility during the week as the stock rallied more than 20% in a few days.  One way to take advantage of that move higher in implied volatility is to sell some Nov premium, which captures Q3 earnings for NFLX.  But NFLX has had huge moves on earnings in the past year, so naked short options seems too risky.  One potential idea that looked interesting to me was selling the Nov 65 straddle and buying the Nov 50 / 80 strangle, for a $9.60 credit, protecting the wings but still collecting 15% of current spot price (around $66).
Read here