Trading Diary: Nov 19th – 23rd

by Dan November 25, 2012 7:56 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 19th to Nov 23rd:  

Monday Nov 19th: 

Action: XLK ($28.30) Sold to Open Dec 29 Calls at .20
New Position: XLK ($28.30) Long Dec 28/29 Call Spread for .29

Dan:  The prior week with AAPL, MSFT, INTC and a few other large XLK components seemingly in a free-fall to fresh multi-month lows, XLK Calls seemed like the lower risk, lower vol way to play for a short term bounce.  After and almost 4% rally off of Fridy mornings lows into Monday, I decided to further reduce my cost basis by spreading the Dec 28 calls that I bought on Thursday.  The new position is a $1 wide call spread in Dec that is now very near my high strike.  If XLK rallies above $29 in the coming days I will look to exit the postion for more than a double of my original cost.   Read here

Action: Sold to close the AAPL (548.00) Dec 525 / 545 1×1 Call Spread at $12.25 for a $4.55 gain

Enis:  We had been waiting for a while for the AAPL capitulation that signaled a short-term bottom in the stock, and the price action on Friday, Nov 16th finally seemed appropriate for a bullish bet.  My one regret is to get out of the trade so early on Monday, but the stock had already moved 6% higher from our entry point on Friday, so taking the profits seemed like the prudent move in such a volatile situation.  Going forward, I do not see AAPL testing the 500-520 area anytime soon, but I do think a move back towards 530 could be in the cards over the next month, in which case we might look to re-enter a bullish bet on the name.  Read here



Tuesday Nov 20th:

TRADE: JCP ($17.27) Bought the Nov 23rd/ Dec 18 Call Calendar for .65

Dan:  The sentiment in JCP seems to have gone from bad to worse in the last 2 months, the the point where investors appear to be pricing some sort of death spiral in the months to come for the beleaguered retailer.  Heading into Black Friday, the stock seemed to be getting a bit overdone on the downside on a very short term basis, while implied volatility had a very healthy bid.  While I wanted to play for a December bounce, outright purchases of calls are extremely expensive so I decided to sell the Dec 18 weekly calls to help finance the purchase of the Dec 18 Calls.  To put how expensive the Nov weekly calls were, with less than 3 full trading days to expiration, they were a little less than a third of the value of the same strike calls in Dec that had more than 4 weeks of time value left in them.  Read here



Wednesday Nov 21st:

TRADE: BAC (9.72) Bought the Jan 9/7.5 1×2 Put Spread for .14

Dan:  BAC has had some year, and has traded in a massive range.  As we get closer to potential “fiscal cliff” compromises in the coming weeks, investors who bought the stock in the last year and have significant gains (the stock is up 77% ytd) may consider taking some profits with capital gains taxes at the 2012 rate of 15% rather than the potential 20-40% in 2013.  While I don’t exactly love selling 5 cent options, selling 2 of them in a $10 stock that are nearly 20% out of the money help finance the purchase of the Puts that I wanted to own to create a ratio spread that has a 10 to 1 potential payout seems like a good risk reward.  This is the sort of trade that should be easy to make 2-3x my money if the stock finds its way back towards $9 in the next month or so. Read here



Friday Nov 23rd:

Action Sold to Open JCP ($17.28) Dec 19 Call at .48
New Position:  LONG JCP DEC 18/19 Call Spread for .17

Dan:  With JCP barely moving since entering this trade just a few days earlier, and the Nov weekly 18 calls that was short expiring worthless, I wanted to further reduce the cost of the Dec 18 calls that I own by selling a higher strike call to make a vertical call spread.  So to recap, I originally sold the Nov weekly 18 calls for .26, and bought the Dec 18 calls for .91, the calendar costing .65, the intention was to have Nov expire worthless.  Now I own the Dec 18 calls for .65, with the stock in the exact same spot I now sold the Dec 19 calls at .48, further reducing my cost basis, but capping my potential gains.  But here is the thing, I now own a $1 wide call spread for .17 in a stock that is very oversold and has the potential to move 10-15% in a snap.  This is the exact position that I had envisioned when I conceived the idea on Tuesday, now I sit and wait for a move, but regardless I have a risk reward scenario that seems very favorable.  Read here