Trade Update Nov. 27th, 2012 at 10:24am: Since buying back the Jan 55 Puts yesterday with the intention of spreading them on weakness, AXP has declined ~2% and I am now going to turn the long Puts into a vertical, lowering my break-even, but also limiting my profit potential, but dramatically increasing my odds of success on the trade.
Action: Sold to Open AXP ($55.10) Jan13 52.5 Puts at .85
New Position after Spreading: Long AXP ($55.10 ) Jan13 55 / 52.50 Put Spread for .40
Break-Even on Jan13 Expiration:
-Profits btwn 54.60 and 52.50 of up to 2.10, with max gain of 2.10 at 52.50 or lower.
-Losses of up to .40 btwn 54.60and 55, with max loss of .40 at 55 or higher.
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New Trade Nov 26th, 2012 at 11:02am: A few weeks back I laid out a case why AXP could be vulnerable to some near-term weakness (below) and the reasons for why I purchased the Jan13 55/50 Put Spread for 1.25. Shortly after I initiated the trade, the stock fell from about $56 to about $53, and I decided to take the quick gains of .90. With the stock’s recent rebound back to $56, I can initiate the same trade for less….but I am going to do with a slight twist.
I am now going to buy the Jan13 55 Put for the cost of my original Put Spread (1.25) and look to spread on any weakness in the stock.
Trade: AXP ($56.16) Bought Jan13 55 Put for 1.25
Break-Even on Jan13 Expiration:
-Profits below 53.75
-Losses of up to 1.25 btwn 53.75 and 55, max loss of 1.25 above 55.
Trade Rationale: The near the money options are relatively cheap offered at ~20 implied vol vs the 30 day realized of ~21% and the 90 day realized vol of ~20%. This is the main reason why I am not starting with a vertical spread, but I will definitely look to spread as we get closer to the holidays to off-set some decay with the hope of selling an inflated implied vol on any weakness in the stock.
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Trade Update Nov 15th, 2012: AXP is down 5% since buying this Jan Put Spread just this past Friday, and the Spread appreciated nicely in a very short period of time. The entry was obviously pretty decent, but with the market nearing near-term oversold conditions, I am going to take my profits and move on and look for a better re-entry point on the bearish thesis.
Action: Sold to Close AXP ($53.11) Jan13 55/50 Put Spread at 2.15 for a .90 gain.
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Original Post Nov 9th, 2012: New Trade – $AXP: I Wish My Wife Would Leave Home Without It
Here is a preview of what I will be discussing tonight on Options Action on CNBC at 5pm:
Financials stocks were one of the hardest hit sectors over the last couple of days since the results of the Presidential election, as investors shifted their focus from the WHO, to the WHAT, meaning now that they know WHO, we have better chance of understanding WHAT the potential outcomes of a few pressing issues, namely the resolution or compromise on the impending “fiscal cliff”.
Bank stocks were hit fairly hard as fear of, believe it or not – increased regulation, under a second Obama administration, might make it increasingly hard to demonstrate revenue and earnings growth. There were other stocks in the financial sector that have showed better relative strength this week, like AXP, that I feel may be in for a bit of weakness as it becomes clear that the wealthy may bear a bit more of the tax burden as our lawmakers attempt a compromise on the “cliff”.
AXP is interesting as it is often used as a proxy for mid to high end consumers, the very people who may spend less in the coming months/quarters during this time period of tax uncertainty. Even if the consumer isn’t even paying attention to the details of the Fiscal Cliff, the perception is all that matters for these stocks.
Defined risk short exposure looks attractive into the new year. From a Volatility perspective, the stock has moved more than 1% six times in the last ten trading days, an obvious indication that realized vol is picking up a bit. At the Money vol in Jan is only about 22.5 vs the 30 and 90 day realized vol of about 20.5. It won’t take much for this trade to be a winner.
TRADE: AXP ($55.90) Bought Jan13 55/50 Put Spread for 1.25
-Bought 1 Jan13 55 Put for 1.80
-Sold 1 Jan13 50 Put at .55
Break-Even on Jan13 Expiration:
-Profits of up to 3.75 btwn 53.75 and 50, max gain of 3.75 at 50 or below.
-Losses of up to 1.25 btwn 53.75 and 55, with max loss of 1.25 at 55 or higher.