Trading Diary: Oct 15th – 19th

by Enis October 21, 2012 8:32 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 15th to Oct 19th:  

Monday Oct 15th:  

New Trade:  Sold to Open the GDX ($51.17) Nov 52 / 49 put spread at $1.30

Enis:  I initiated this trade shortly after the open on Monday as I saw gold and silver nearing near-term support, and was anticipating a bounce as we approached the FOMC meeting on Oct 24th.  GDX was also technically poised for a bounce from around the $51 level for several reasons, and I was also anticipating potential rotation from mutual funds as they rebalance winners vs. losers (gold miners have been losers in 2012, suggesting potential buying).  Finally, the fundamental backdrop for GDX has improved in the last month, as oil and energy costs broadly have fallen, while precious metals have not.  Read here

Action:  Sell to Close GOOG ($734) Oct 715 / 680 / 645 Put Butterfly at $6.00 for a $1.00 gain

Dan:  Much like the way business models of of web 1.0 companies were proven to be invalidated more than a decade ago, many cynics are calling for business models of web 2.0/3.0 companies to be severely challenged by computing trends towards mobile.  Whether it be FB, GOOG, ZNGA, you name it, they will all grapple in the months, quarters, years to come with monetizing the mobile experience.  Given GOOG’s near monopoly in web search, the pressure on them to figure this out is crucial.   After first being very wrong on direction of this trade, the stock came back to the price where I initiated the trade, but with implied vol up a bit, I was able to get out for a small profit and take another look prior to earnings.  Well unfortunately I didn’t get another chance as the results were  prematurely released.  I guess the only positive take away from this trade was the validation of our choice of strikes as the stock closed within $2 of the guts of the Put Fly.  Read here


Tuesday Oct 9th:

New Trade: Bought to Open the C ($37.13) Nov 36 / 34 Put Spread for $0.48

Dan: less than 24 hours after C’s better than expected Q3, the company’s Board announced the “resignation” of the 5 yr CEO.  The stock ripped on the news as C’s 89% decline during Pandit’s tenure seemed to much for investors to bare.  The only problem to me is the sequence of events doesn’t really pass the smell test.  I wanted to look for a structure with a better than decent risk reward that would benefit from a re-tracement of the previous few days move.  Regardless of this news, I already want to won Puts in banks, as I think Nov could be a volatile month for stocks.  Read here


Wednesday Oct 10th:

Action: Bought to Close the GDX ($52.70) Nov 52 / 49 Put Spread for $0.95 for a $0.35 gain

Enis:  As the market rallied to start the week, the corresponding rally in gold and silver was muc too tepid for my taste.  I lost all confidence in this trade when I saw the risk-on rally not being led by the precious metals, so I decided to take my gains from this trade and move on to the next one.  Interestingly, GDX was actually up on Oct 19th even though gold and silver were both down more than 1% on a big risk-off day, so I am still keeping a close eye on GDX for potential long trades again.  Read here

New Trade:  Bought to Open the EBAY ($48.00) Jan13 47 / Nov 45 Put Diagonal for $1.70

Enis:  Given the overall backdrop in tech (selling big winners), and my thought that EBAY’s run this year had finally created a frothy valuation relative to the last 3 years, I wanted to initiate a trade that gave me a chance to make money on the downside without much risk on the upside.  I actually expected EBAY to beat earnings, but thought the Put Diagonal was compelling enough that the risk/reward made it worthwhile to put this trade on ahead of the earnings event.  Indeed, EBAY did beat, and the positive reaction was more than I expected, touching new highs for the year at one point in Thursday trading.  But to illustrate the benefit of this trade structure, the directional move was against me by 4% by the end of the week (EBAY pinned $50.00), but the put diagonal was worth $1.50, down only $0.20 from where I put it on.  Read here


Thursday Oct 11th:

New Trade: Bought to Open the MSFT ($29.50) Oct 29 / 28 Put Spread for $0.13

Dan:  After closing my Oct 30/28 Put Spread on Friday Oct 12th when the stock was 29, I was looking for an opportunity to get back in prior to earnings with a trade that offered a better risk reward that risking $1 to make another $1 as I would have with my earlier trade.  I legged into this spread by first buying the Oct 29 Puts and later, once the stock had fallen a bit selling the lower strike 28s puts to reduce my cost and thus my risk.  Read here


Friday Oct 12th:

Action: Sold to Close the MSFT ($29.58) Oct 29 / 28.50 Put Spread at $0.42 for a $0.29 gain

Dan:  With MSFT’s earnings and guidance fairly disappointing, and less than a day for my position to expire, I decided to take profits on the trade shortly after the open when the stock broke the low from the after hours session during the conference call.  Read here

Action: Sold to Close the FB ($18.97) Nov / Jan13 22 Call Calendar for $0.45 for break-even

Dan:  GOOG’s results and commentary give me less confidence that FB will be able to turn the mounting tides on their business model.  My original intention with this calendar was that the stock would remain range bound, below 22 prior to Nov expiration as a result of the overhang of their 2nd lockup expiration, and then look to spread the Jan 22 calls in an effort to play for a late year, new year rally.  This stock could really be screwed if the company can not figure out a way to grow into their very extended valuation, or at the very least better articulate this plan to investors.

Read here

New Trade: Bought to Open the AMZN ($240.40) Nov 230 / 210 Put Spread for $4.85

Dan:  AMZN investors have placed a ton of hope that years of heavy investment will finally pay off in terms of margins on earnings.  For a company that has disrupted so many established bricks and mortars businesses, and has demonstrated miraculous revenue growth, they have made no progress in turning new investments into bottom line earnings growth. Given the market environment we are in, where winners are bing sold, if there are any hiccups in AMZN’s Q3 results, or Q4 guidance, the stock could be vulnerable to a nasty sell off not to dissimilar to what GOOG saw last week.  Earnings also come in a week that AAPL is going to introduce what I have dubbed the Amazon Kindle Fire “Extinguisher” or soon to be know as the iPad Mini.  Puts are expensive, but spreads make sense, hard to find too many in Oct where you can pay less than 25% of the width of the spread, which is why I chose Nov.  Read here

Also on Friday we had Oct Puts that we were short expire worthless in a few Calendar trades, which leaves us naked long Nov Puts, we will look to spread these in the coming days:

10:56 AM EDT – OCTOBER 4, 2012 BY ENIS

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

1:28 PM EDT – OCTOBER 5, 2012 BY DAN

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

3:23 PM EDT – OCTOBER 12, 2012 BY DAN

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