Trading Diary Oct 22nd – 26th

by Dan October 28, 2012 9:55 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 22nd to Oct 26th:  

Monday Oct 22nd:

TRADE: CMI ($94.25) Sold to Open the Nov 92.5 / 97.5 call spread at $2.30

Enis:  With CMI rallying back up to near one-month highs after its weak pre-announcement, and poor CAT earnings, I thought that it offered a good entry to fade the strength ahead of its earnings event on Oct 30th.  The recent strength seems like traders relying on the summer playbook, when CMI pre-announced, made a capitulation low, and then rallied from there with the broader market.  Two straight quarters of weakness signals a trend change in the business for me, and I think those traders playing for a bounce are going to be disappointed this time around.  Read here

Action: Sold to Open JPM ($41.80) Nov 40 Puts at .42
New Position: Long JPM Nov 41/40 Put Spread for .06

Dan:  A few weeks back I initiated an Oct/Nov 41 Calendar with the intention that JPM would underperform the implied move for their Q3 earnings and the stock would close above 41.  My intention was to lessen the cost of Nov Puts.   With the stock down a couple % I took the opportunity to spread the Nov 41 puts, now I own a $1 wide put spread near the money for only .06, that is my max risk.  Read here


Tuesday Oct 23rd:

Action: Sold to Close C ($36.93 ) Nov 36/34 Put Spread at .48  for no loss or gain

Dan:  From the get go this was a bit of a cheeky trade as I was trying to fade a bunch of good news (better than expected Q3 earnings and top management changes), the trade was against me immediately an the first opportunity I had to get out unchanged, I did.  Read here

TRADE: ABT ($64.77) Bought the Feb13 65 / Dec 67.5 call diagonal for $1.50

Enis:  I have had my eye on ABT ever since I singled out health care as the best sector-specific long. However, ABT had been on a one-way train to new highs for most of the past 6 months, so the 10% selloff back down to the $65 support level finally offered the low-risk entry for which I had been waiting.  However, a severe selloff like that is rarely followed by a quick bounce, which is why I opted for the call diagonal as opposed to just a pure long call spread.  Time is on my side as I wait for ABT to regain its uptrend.  Read here

TRADE: CL ($106.70) Bought the Dec 105/100 Put Spread for 1.10

Dan:  Consumer staples stocks appear to be a fairly crowded trade given their defensive nature and relatively high dividend yield.  CL trading at 20x next years expected earnings with growth only expected at 10% and implied vol near 52 week lows, put spreads looked cheap heading into q3 earnings.  Read here

Action: Sold to Open GS ($119) Nov 110 Puts at .75
New Position: Long GS Nov 115/110 Put Spread for .65

Dan:  Much like the Citi Put Calendar transition to Put Vertical, I initiated an Oct/Nov 115 Put Calendar in GS prior to Q3 earnings a few weeks ago……With Oct expiration come and gone, I spread the Nov 115 Puts and now own a $5 put spread that is 4.5% out of the money.  Read here


Wednesday Oct 24th:

TRADE: KO ($36.95) Bought the Jan14 35 put for $2.70 outright

Enis:  This is an unorthodox trade for us on the site.  But my main thought was that KO Jan14 implied volatility is just too cheap.  Buying the Jan14 35 put is a very low risk trade with more than a year until expiry, so I initiated it now, and can adjust it in many ways in the future.  One of the main reasons for upward sloping term structure (where the Jan14 trades 2-3 vol points above Jan13) is because traders don’t want to take so much time risk.  In this case, traders are likely too comfortable in taking that long-term risk in KO, and this trade takes advantage of that.  Read here

Action: Sold to Close the WYNN ($113.50) Nov 105 Puts at $1.25 for a $0.15 loss
New Trade: Bought to Open the WYNN ($113.50) Dec 110 / 100 Put Spread for $2.70

Enis:  I initially got involved with WYNN at the beginning of October.  I bought the Oct / Nov 105 put calendar for $1.40, with the thought that I could wait until the day before the earnings report to adjust my position, without having to pay much in time decay.  That was the case, but since WYNN stock stayed above the $110 level the entire time, I lost confidence in my $105 put strike as the appropriate trade.  That’s why I decided to roll to the Dec 110 / 100 put spread (essentially for $2.85 net, including the $0.15 loss).  WYNN ended up reporting a strong number due to strength in Las Vegas (despite weak Macau numbers that I’d anticipated), and the stock is trading near $120.  But with December, I think my put spread still has a chance, and am holding it at this point. Read here


Thursday Oct 25th:

Action: AMZN ($227.60) Sold to Close 2nd half Nov 230/210 Put Spread at 7.70 for a $2.85 gain.  Avg gain on entire position was 2.75
Action: AMZN ($228) Sold to Close half Nov 230/210 Put Spread at 7.50 for a $2.65 gain.

Dan:  Heading into AMZN’s Q3 print, the stock sold off about 5% as investor concern towards high-fliers appeared to be a bit heightened.  With the the stock below my long strike and the put spread worth 40% of the width of the spread, the risk reward of the trade no longer looked as attractive as when I put it on late last week.  Read here

New Trade: AMZN ($228) Bought Nov 2nd Weekly 210/200/190 Put Fly for .90

Dan:  Using a portion of the previous trades profits I wanted to look for a trade that had a better than avg risk reward, despite being lower probability.  A $10 wide put fly that offered a 10 to 1 payout in the event the stock was down 10% in a week, which happened to be almsot be the stocks implied move on earnings, seemed like just the trade.   If the stock retraces a bit of Friday’s rally next week, I will look to trade out of the 210 puts and recoup some premium.  Read here

Action: Sold to close 1/2 CL ($104.18) Dec 105/100 Put Spread at 1.65 for a .55 gain

Dan:  Following CL’s Q3 earnings that disappointed, the stock was down a little more than 2% in line with the implied move and I decided to take off half of my position for a gain.

Read here


Friday Oct 26th:

TRADE: RL ($152)  Bought Dec 145 / 135 put spread for $2.80

Enis:  The main grunt work for this trade was done by our friend Carter Worth, who had a strong technical thesis that RL is ripe for a fall.  One of my main reasons for agreement was the price action in Coach after a strong earnings number.  COH reported on Tuesday morning, and surged higher in Tuesday trading on an unexpected, strong all-around number.  But the stock sold off for the rest of the week, and is only 3% higher than its pre-earnings close, which gave me the impression that traders and investors are not giving high-end retailers the benefit of the doubt in this macro environment.  Read here

TRADE: MSFT ($28.05) Bought Jan ’13 26/24 1×2 Put Spread for .10

Dan:  As many readers of the site know, it has been my opinion that there was way too much excitement for expected new products earlier in 2012.  Now that all the fairly lame products arrived or arriving in the near future, the stock will likely be a bit of a holding pattern until investors get a sense for uptake of Windows8 and new mobile devices.  The ratio put spread should carry fairly well, while offering a high potential reward and fairly low risk.  Read here

Action: Sold to close NFLX ($62.15).  Bought the Nov 65 straddle at $6.95 to close, and sold the Nov 50 / 80 strangle at $0.35.
Closed structure for net debit of $6.60, for a gain of $3.26

Enis:  I got lucky on this one.  I had this NFLX trade on my radar ever since its earnings report earlier in the week.  My hope was to close the trade as NFLX got closer to the $65 short straddle strike, so when I saw NFLX rallying in the morning, and implied vol in November around 50 (on a Friday ahead of the weekend), I thought that this was about as good of an exit I was going to get on this trade for the time being.  Instead of waiting around another 3 weeks for time decay, I took the trade off.  The subsequent takeout rumors, stock surge, and implied volatility surge made me look much smarter than I actually am.  Read here