Trading Diary: Nov 12th – Nov 16th

by Enis November 18, 2012 7:51 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Nov 12th to Nov 16th:  

Monday Nov 12th:  

Action: Sold to Close EBAY ($47.10) Jan13 47 / Nov 45 put diagonal for $2.33 for a $0.63 gain

Enis:  I initiated this EBAY put diagonal ahead of earnings in October because of the favorable odds given how cheap Jan13 implied vol looked relative to Nov.  I also thought much of the good news was priced in to EBAY stock, with resistance at 50 looking strong.  Since its earnings bounce, EBaY has gradually slid lower, but the $46 level was obvious support.  I never expected a home run on this trade, but with a nice gain and support nearby, I took the trade off on Nov. 12th.  Read here.



Tuesday Nov 13th:

New Trade: HD ($63.75) Bought the Feb 62.5 / 55 Put Spread for $1.80

Dan:  HD just smells similar to one of those perceived safe haven trades that have become all too common in a small handfall of consumer facing names in the past year. One by one (the latest being WMT) they have all come apart when too many investors head for the door at the same time. With HD up almost 5% following Tuesday morning’s earning release, I wanted to make a defined risk bet that HD doesn’t have a ton more room to the upside, up on what appears to be a fairly parabolic near term move. I chose Feb expiration as it catches their next quarterly report.  Read here

New Trade:  CSCO ($16.80) Bought the Nov / Dec 16 Put Calendar for $0.15

Dan:  I didn’t have a strong feel on sentiment or direction on this trade heading into earnings, but buying calendars at the implied move in front of the print were not all that expensive. Even after the stock was up 5% after the print, the calendar only lost half it’s value.  As a trader I don’t mind spraying a few low premium bets like this around, risking little with a high probability of success if you get the direction right.  Read here

Action: Sold to Close AAPL ($544) Dec 570 / 600 1×2 call spread at $2.50 for a $1.80 gain

Dan: Just a few days earlier when short dated Implied Vol was shooting higher on AAPL’s continued sell off, I decided to take a shot on a reversal, but also that Vol would settle in a bit.  After the stock seemingly stabilized and vol came in, I took the position off for more than 3x what I paid after the stock barely rallied. The rationale was quite simple, even-though the stock appeared to be trying to make a near term bottom, it still acted very poorly relative to the broad market, and at some point soon the strikes that I chose for this ratio spread were not likely to be the right ones if the stock continued to drift lower.  Read here.



Wednesday Nov 14th:

New Trade:  JCP ($17.55) Sold the Jan13 19 straddle at $3.68, Bought the Jan13 16 / 22 strangle for $1.51, Collected $2.17 net credit on the structure

Enis:  Nothing seems to be going right for JCP.  After a bad earnings report, it finally broke below the important 19-20 support level this week, on heavy volume.  The stock, however, has become a “hate hotel” where all the haters feel comfortable.  In other words, sentiment has gotten so bearish that I felt like it might finally be time for a contrarian bullish play.  But when a stock gets this oversold, it’s rare that it skyrockets higher, so I used a rangebound bullish bet, using Jan13 expiry, to give the stock time to build a more stable base.  Read here

Action: Sold to Close FB ($21.90) Nov 22 / 24 call spread for $0.40 for a $0.01 gain

Dan:  After being almost immediately wrong on this trade, I became very right the day of the lockup expiration.  The thesis was that the overhang was well known and that the stock was likely incorporating a bit of the expected weakness.  The reason I sold the spread for what I paid for it, as the stock had been very volatile of late and in some ways I felt like I got bailed out, and my entry point was obviously a tad early.  I would look to be a buyer of FB into year end or for the new year on any weakness.  Read here

Action: Sold to Close COH ($53.30) Nov 55 / 45 put spread at $1.70 for a $0.90 loss

Enis:  I traded this put spread all the way back in late August, when I expected a weak macroeconomic backdrop during the fall to scare off luxury goods investors.  The stock is actually down more than 5% since my trade, but this is another example of the importance of timing in options trades.  My November spread unfortunately decayed, even though COH hit a 3 month low this week, so I took the trade off for a partial loss, though it felt like a win given that the spread was close to worthless only 10 days ago.  Read here



Thursday Nov 15th:

New Trade: AAPL (528.20) Bought Jan13 540 / 580 1×2 call spread for $3.20

Enis:  We wanted to try to play for a bounce in AAPL once again, as we still thought a short-term bottom was close.  However, given the stock’s freefall, we didn’t want to step in with a purely long delta bet, so we initiated a 1×2 call spread, which is more a bet on implied volatility than direction.  Interestingly, the stock is close to unchanged (as of Friday’s close) from where we initiated the trade on Thursday, but the spread is actually priced around $1.70 as of Friday’s close because implied volatility moved much higher on Friday.  This trade will take a bit more time to play out than the Dec 570 / 600 1×2 that Dan traded last week because it still has 2 months to expiry, but we like the risk/reward and plan to hold on to it for a while.  Read here

New Trade: XLK (27.70) Bought Dec 29 calls for $0.49

Dan:  XLK has ovbiously been a fairly less risky way to play AAPL as the stock makes up almost 20% of the weighting of the ETF.   AAPL is due for a bounce, but the stock’s near 25% peak to trough sell off from Sept to mid Nov has overshadowed a bit of the weakness in other large XLK components in that same time period, IBM, MSFT & GOOG all have been down at least 13% from their Sept highs.  As I wrote on Quick Hits on Friday morning, I averaged into this position a little bit, so I feel a high level of conviction that XLK vol in Dec is very reasonable and this is a low risk way to play for a quick reversal in what maybe near term overly negative sentiment in large cap tech stocks.  Read here

Action: Bought to Close CMI ($94.50) Nov 92.50 / 97.50 Call Spread for 2.20 for a 0.10 gain

Enis:  I got bailed out on this trade as CMI sold off back to near where I initiated the trade in October (after trading above 100 last week).  However, CMI stock specifically has shown bizarre strength since the start of November, which seems misplaced given an unchanged, poor macroeconomic backdrop that has hurt the stock  since the spring.  I might try my hand again on the short side on CMI the next time we see some broader market strength.  Read here

Action: Sold to Close QCOM ($61.35) Nov / Jan13 57.5 Put Calendar at $1.14 for 0.10 gain

Enis:  The original thesis for this trade was the unprecedented implied volatility spread between Nov and Jan13 ahead of earnings.  The stock was actually one of the few outperformers in the tech sector on earnings, but my put calendar was still profitable as the implied volatility spread collapsed.  A good example of a trade where you make money in most scenarios without taking undue risk (and if I had traded a call calendar instead, which I had contemplated, the trade would have been a home run.  Read here

Action: Sold to Close AXP ($53.11) Jan13 55 / 50 at $2.15 for a 0.90 gain

Dan:  AXP sold off so hard so quickly after putting this trade on, the idea of not taking profits in a near term oversold market seemed to be less than prudent.  Out thesis still stands, if higher end consumers will be paying more taxes as a result of a compromise or not on the “fiscal cliff”, they will be spending less, and AXP could see an earnings slowdown as a result.  I will look for a bounce back above 55, to re-initiate this bearish view.  Read here

Action: Sold to Close PAYX ($31.53) Dec 32 / 30 Put Spread at $0.67 for a 0.32 gain

Dan:  This was not a high conviction trade to begin with, but after waiting to get a sense for their Q1 earnings and Q2 guidance back in late Sept, this seemed to be a stock that had more than it’s share of good news priced in.   Patience to initiate the trade on strength after earnings paid off, and waiting it out with a slow decline help capture almost a double of my premium outlay.  Again this trade falls into the category of clearing my trading book of shorts in an oversold market.  Read here

Action: Sold to Close CL ($103.62) Second Half of Dec 105 / 100 Put Spread at $1.75 for a 0.65 gain, average gain of 0.60 for entire position

Dan: As we head into this week’s holiday, the idea of owning too much premium in Dec does not seem that appetizing   For example, on Thursday when I closed the balance of this position, I was looking at the next 10 calendar days that only had 4.5 trading days (4 weekend day sand 1.5 days of for Thanksgiving), CL will real need to move around a bit in this time period for my long strike not to melt.  We have talked about this for a bit not, but heading into next month, the idea of holding long premium in Jan will also become increasingly less desirable as market makers start to anticipate Xmas and New Years week’s likely low volume, low volatility trading.  CL is still a great short in our book, the stock is too expensive too its peer group for its expected growth that is mediocre at best.  Read here



Friday Nov 16th:

New Trade: AAPL ($518.50) Bought AAPL Dec 525 / 545 1×1 Call Spread for $7.70

Enis:  We finally felt like AAPL price action was getting capitulatory, based on the volume on Friday morning and the fact that AAPL was approaching the all-important $500 psychological level.  So we pulled the trigger on a long delta bet that was close to being purely long the stock, but with more protection than a naked stock position.  We considered buying a higher strike call spread to improve our risk/reward, but we wanted a structure that would be short implied volatility if AAPL stock rallied to 550, so we chose this call spread instead.  Read here

New Trade: F ($10.45) Bought the Feb13 11 / 12 Call Spread for $0.25

Enis:  As we changed to a more bullish market stance in the last few days of the week, we were looking for potential market leaders on the bounce.  Ford seems like a good fundamental and technical candidate from the long side, given its cheap valuation, exposure to favorable domestic trends, and strong technical position.  I bought the Feb 11/12 call spread because it catches the next earnings report in late January, but is still quite cheap for a 3 month call spread only 5% out-of-the-money.  Read here

Action: Bought to Close PCS ($10.53) Nov 11 put for 0.50, for a 0.55 loss on the risk reversal

Dan:  I got this trade wrong from the get go, I really expected for Sprint to make a competing bid for PCS and did not expect Softbank to make their fairly confusing bid for Sprint.  I tried to hold out as long as possible as PCS dropped below my short put strike, and debated being assigned the stock as it appears that the stock might have put in a short term bottom as it was buoyed by comments from management on Friday about the synergy expectations for the PCS/T-Mobile combination.  As I don’t have a ton of conviction on the story, I decided to cover the put and move on.  Read here

Action: Sold to Close VIX ($18.20) Nov 20 / 25 Call Spread at 0.25 for a 0.55 loss

Enis:  This was my worst trade of the last month.  When I initiated this VIX call spread, the SPX was trading around 1385.  The most bizarre aspect of the trade was that SPX actually sold off down to 1345 over the next week, but the VIX was actually unchanged during that period.  With the trade close to expiring, I was forced to take it off for a loss on Friday morning.  Read here


Trades expiring worthless on Nov expiry:

TIF Nov 55 / 50 put spread initiated on Aug 14th, 2012

Read here

YUM Nov 65 / 60 put spread initiated on Oct. 9, 2012

Read here