Trading Diary Oct 8th – 12th

by Dan October 14, 2012 5:37 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 8th to Oct 12th:  

Monday Oct 8th:

New Trade:  PCS ($12.66) Bought Nov 11/14 Risk Reversal for .05

Dan:  Telecom M&A hit a fever pitch this week with Deutsche Telecom (DT) confirming talks with PCS to combine them with T-Mob, Sprint (S) considering their options re: PCS, then Softbank of Japan and Sprint confirming talks that could include Softbank taking a controlling stake in S and then looking to buy CLWR and possibly the combined PCS/T-Mob in the near future.  Wow, that just gave me a migrane…..but in the end my sense is that there is more upside for PCS as DT will likely to have to sweeten their bid no matter what the outcome.  Despite all the news, and Sprint’s stated reluctance to bid for PCS (now), the stock held up very well leaving me to believe that this saga is not quite over.  Read here



Tuesday Oct 9th:

Action: Sell to Close YUM ($66.40)  Oct 62.50/55 Put Spread at .47 for a .65 loss.
New Trade: Bought the YUM ($66.40) Nov 65/60 Put Spread for 1.25

Dan: Heading into YUM’s Q3 earnings report I wanted to adjust my 2 month old bearish position that had lost 2/3 of its premium despite the fact that the stock was trading at almost the identical spot where I put the Oct Put Spread on in early Aug.   I closed the Oct Put Spread for a loss and Bought a Nov Put Spread with a much higher break-even that gave me better odds of success.  YUM’s Q3 performance in China was better than feared and U.S. results were actually the bright spot.  The stock was up 7.5% on Wednesday, but has since given about 2% back.  This trade isn’t over yet (despite being a 2x loser) and I will look to cut losses on any broad market or stock specific weakness prior to Nov Expiration.  Read here

New Trade:  NFLX ($67.30) Sold Nov 65 straddle and bought Nov 50 / 80 strangle, collected $9.86

Enis:  I mentioned my thoughts on NFLX several times in the past month, and ended up finally pulling the trigger this week, as the stock sold back off to near the $65 level, middle of the recent range, but implied volatility stayed elevated.  Though NFLX has averaged 24% moves in the past 4 quarters, the stock’s range between last earnings and this coming earnings reports is the smallest in a couple years.  I think the stock resides in more stable hands than it has in the past few years, but the fundamental headwinds make it hard to justify a very strong rally from here either.  But if I’m wrong, my downside is only $5.14, vs. the $9.86 that I collected.  Read here



Wednesday Oct 10th:

Action: CMI ($87.75) Buy October 90 / 95 call spread for $0.80 to close, for $1.70 gain.

Enis:  I had sold the Oct call spread in CMI in anticipation of the stock selling off ahead of earnings.  Got a bit lucky here, as the company pre-announced for the second straight quarter (which I was not expecting), so I took my profits on the selloff, rather than wait another 8 trading days to realize the remaining $0.80 in my spread, especially since all of the bad news is now out in the stock.

Read here



Thursday Oct 11th:

New Trade: WFM ($97.35) Bought the Nov 95/85/75 Put Butterfly for 1.85

Dan:  Last quarter there were many eye-popping high profile break-downs of prior market leaders (PCLN, CMG, SBUX and NKE to name a few) in the consumer discretionary space.  As we head into the meat of Q3 earnings and get closer to the midpoint of Q4, I think there is a strong likelihood that we could continue to see a rotation out of large individual gainers as portfolio managers and individual investors alike look to protect gains in a year where most are underperforming the major indicies and where most have had a few names account for a lot of performance while masking a lot of bad investing.  WFM is one of those stocks that could fall in this category given the ytd performance (and 3 year performance for that matter) with a very high valuation to growth, and possible economic headwinds (specifically $4 gas at the pump), this stock appears priced for perfection just a few % from all time highs.  Any hiccups in their Q3 report due in early Nov and this one could be set for a tumble.  Read here



Friday Oct 12th:

New TradeGS (120.75) Bought Oct/Nov 115 put calendar for 1.40

Dan: Heading into JPM’s Q3 report last week I felt the best trade on the board was selling Oct to finance the purchase of Nov (no matter what your directional bias was, mine was slightly lower), either in an effort to take advantage of the term structure, or to try to thread the needle to own Nov as I felt was too cheap.  This week I will look to cover Oct and Spread Nov Puts in JPM and arrive at a cheaper Put Spread than had I bought it prior to the earnings event.  I am looking to do the same thing in GS, and I like the trade a bit better than the JPM as I will only need to manage my Short Oct leg for 4 trading days after earnings and prior to expiration.  If GS moves far less than expected, Oct Puts that I am short will lose most extrinsic value quickly, while Nov doesn’t come in too much from levels that I already think are pretty reasonable.  Read here

Action: Sold to Close MSFT ($28.96) Oct 30/28 Put Spread at 1.00 for a .52 gain

Dan:  Since early summer we have had a handful of bearish trades on PC related names for a whole host of reasons, but largely due to the thought that any stock performance in the space associated with the hope for a PC upgrade cycle late in 2012 will likely be met with flat-out disappointment.  Heading into MSFT’s print this week,  with the stock down 5% since initiating the position in Aug, and the stock right in the middle of my strikes I felt the risk/reward was no longer in my favor.  WIth the stock at ~$29 and the $2 wide  Oct 30/28 Put Spread worth ~$1, I was risking $1 to make $1 into a potentially volatile event.  I remain bearish but will look for a better entry point or trade structure that I feel offers a better risk/reward.  Stay Tuned, this trade is far from over (see INTC’s 3 month performance).  Read here

Action: Sold 2nd half of AIG ($35.25) Jan13 35 / 40 call spread at $1.63 for $0.46 gain

Dan:  My timing of the entry point right after the U.S. Treasury’s unloading of what is likely their second to last block in AIG was pretty good.  WIth the stock still acting fairly well, but financials starting to show some relative weakness following JPM and WFC’s Q3 reports on Friday I wanted to take my profits and look for a better entry point to establish a bullish trade that will benefit from possibly new found enthusiasm in the new year if and when the U.S. govt is no longer a shareholder of AIG.  Read here