Trading Diary Oct 31st – Nov 2nd

by Enis November 4, 2012 5:22 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 31st to Nov 2nd:  

Wednesday Oct 31st:

No new trades, but click here for a post where we updated some of our outstanding trades.

Thursday Nov 1st:

New Trade: LNKD ($105.90) Sold the Nov 105 straddle and bought Nov 90 / 120 strangle, collected $9.50

Enis:  We chose this trade structure because LNKD’s range of 90 / 120 seemed unlikely to break, particularly since LNKD had few new catalysts and was basically just providing a quarterly business update in an environment where social media trends seemed stable (based on Facebook’s quarterly commentary).  We like this type of trade when we get risk/reward close to 2 to 1 in our favor (because implied volatility is elevated), and a defined range seems to offer protection.  Both characteristics were met in LNKD’s case.  Read here

New Trade: SBUX ($46.40) Bought the Jan13 50 / 55 / 60 call fly for $0.57

Dan:  After taking a hard look at the set up into SBUX’s earnings report, I concluded that it did not lend itself to pressing the stock on the short side and I wanted to look for a fairly low premium way to get some exposure on the long side.  Call Butterflies looked particularly attractive as outright call purchases looked a tad pricey with the knowledge that IV would come in at least a few points, maybe as much as 5-7 and while I maybe get the direction right I could lose money owning calls.  I chose Jan13 because if I was wrong on direction I had  2 and half months to eventually be right with a structure that offered almost a 9 to 1 potential payout.  Read here

Friday Nov 2nd:

Action: Sold to close the SBUX ($51.09) Jan13 50 / 55 / 60 call fly at $1.35, for a $0.78 gain

Dan:  Rarely do we get such instant gratification, but with SBUX up 10% following the company’s better than expected earnings, I felt it best to take the profit and re-evaluate the story and look for a better entry point for a directional trade once the market has digested the news.  Read here

Action: Sold to close LNKD ($108.40).  Bought the Nov 105 straddle at $8.25 to close, and sold the Nov 90 / 120 strangle at $0.75.
Closed structure for net debit of $7.50, for a gain of $2.00

Enis:  LNKD was initially higher by almost 10% in the post- and pre-market action after it reported on Thursday evening.  However, I was likely to hang on to the position as long as it did not breach the 120 level that I identified as resistance at initiation.  Once the market opened, LNKD quickly sold off.  Once the November implied volatility got to the mid-40’s, I felt like most of the potential gains for this trade were done for the time being.  Rather than take the risk and wait another 2 weeks for the options to decay, I took my gains on the one-day implied volatility crush.  Read here

NEW TRADE: FB ($21.28)  Bought the Nov 22 / 24 call spread for $0.39

Dan:  This is a trade that I put on in very small size as I think there is a slight possibility that the Nov 14tth lockup expiration of 777 million shares may be in the stock down 16% from the recent highs made following their better than expected Q3 earnings on Oct 23rd……I will pick at this position a bit, but will ultimately look to buy a Dec or Jan call spread as we get closer to the expiration.   The thought process for buying a little upside exposure in Nov, is if for any reason the stock looks to absorb the overhang, I think there is a distinct possibility the stock makes up some of the recent lost ground in a quick way.  Read here