Trading Diary: Dec 3rd – Dec 7th

by Dan December 9, 2012 6:18 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Dec 3rd thru Dec 7th:  

Monday Dec 3rd:

Trade: GOOG ($699.00) Bought the Jan13 680 / 640 / 600 Put Butterfly for $6.00

Enis:  We’d been watching GOOG ever since its weak earnings report, and waiting patiently for a good entry on the short side given the significant fundamental headwinds in the online advertising space.  The move up to $700 finally gave us that entry.  I chose the Jan13 put fly because the stock will report earnings before Jan expiry, which gives me a potential out in case the trade does not go as planned between now and then.  But in the meantime, the trade is around short 10 delta, so it should appreciate by $1.00 for each $10 lower in GOOG stock.  If the stock gets back near $640-$650 support, I might take half off.

Read here

Action: Sold to Close JCP ($17.40) Dec 18 /19 Call Spread at .27 for a .10 gain on the position.

Dan: A few weeks back with JCP’s stock seemingly in  a death spiral, I decided that the negative sentiment on a very near term basis was getting a tad over done and decided to leg into a call spread.  With Black Friday sales come and gone, and the stock apparently having little momentum to the upside I closed the position for a small gain.  I am very skeptical of the Company’s plan for an overhaul of their entire shopping experience and would likely look to set up bearish positioning in front of their next earnings report in early February on any rally above $20.  Read here


Tuesday Dec 4th:

LULU:  we previewed the company’s Q3 earnings, but decided against trading the event, read here


Wednesday Dec 5th:

TRADE:  COST ($105.28) Bought the Dec 105 Put for 1.80

Dan:  I bought these puts the day before the stock went ex-dividend of their $7 special dividend to be paid Dec 18th.  I now own the Dec 98 puts and will look to spread as we get closer to this weeks Dec 12th earnings report.    I believe there was a lot of “fast money” that chased the stock after the announcement of the dividend and any disappointing fundamental news could cause a bit if this premium to come out of the stock.  Read here

TRADE: CMI ($101.75) Bought to Open the Jan13 97.50 / 90 Put Spread for $1.54

Enis:  I’ve traded CMI from the short side a couple times in the past 3 months, and the stock popped up on my radar on Wednesday since it was up 5% on no news.  The stock has been a beneficiary of improved Chinese sentiment in the past 6 weeks, but sentiment does not automatically translate into results.  My put spread hopefully benefits as the sentiment-fueled run comes to an end, and investors refocus on the difficult fundamental backdrop.

Read here


Thursday Dec 6th:

Trade: RIMM ($11.95) Bought the Dec14th Weekly / Dec22nd Regular 11.50 / 12 Put spread for .59

Dan:  RIMM has almost doubled off of the near 8 year lows made in Sept. The recent strength probably doesn’t have much to do with anything fundamental, as the stock has very high short interest and it only took a couple upgrades and a little take-over chatter to generate some positive momentum   The stock appears to be treading water near the highs in front of their Dec 20th earnings announcement, and I wanted to take advantage of the high implied volatility in the weekly puts to set up to own the Dec regular puts for their earnings event.  My thought is that the stock’s recent strength likely discounts a good bit of positive news that they are NOT likely to get on this upcoming call.  If the stock closes this Friday above 11.50, and the weeklies expire worthless, I will look to create a vertical put spread by selling the Dec22nd 11 Puts and have a low premium low risk way to play for a 10% pull back.  Read here


Friday Dec 7th:

TRADE: QQQ ($64.95) Bought the Dec31st Quarterly 64/62 Put Spread for .55

Dan:  The fever has broken in AAPL, and the stock feels like it is in full on crash mode.  Pressing AAPL on the short side as it approaches the Nov low seems like a fairly risky endeavor given the recent memory of last month’s snapback from $505 to 595 in a week.  Add to that the sky high implied volatility in the name, and long premium directional plays offer VERY poor risk reward.  AAPL makes up 17% of the QQQ, and the top 8 tech stocks make up 55% of the index, so if AAPL breaks, and other large cap tech follows suit, QQQ puts offer a far better risk reward as the short dated near the money implied volatility is at or near 2 year lows as AAPL’s is near highs. I isolated the Dec 31st quarterly expiration thinking that if the “fiscal cliff” debate goes down to the wire, these puts should stay well bid with little to no movement in the underlying.  Read here

Action: Sold to Open the NKE ($98.25) Dec14th weekly 95 Put at .31
New Position: NKE Dec14th weekly / Dec22nd 95 Put Calendar for 1.09

Dan:  Last week I bought a Put Calendar in NKE, selling the Dec 7th weekly 95 put and buying Dec22nd 95 Put (which catches their Q2 earnings on Dec 20th). The idea was too define the range that NKE would trade in over the next week and finance the purchase of the Dec 95 puts for my earnings trade.

On Friday, with NKE $1 higher than where I put the trade on, the Dec7th weekly 95 puts expired worthless, which reduced the cost of the Dec 22nd 95 Puts by .50 and I then had to make a decision to repeat the process by selling the weeklies again, or turning into a vertical in Dec22nd expiration. I decided to once again turn into a Calendar and this coming Friday will attempt to turn into a vertical if the stock is $95 or higher. Read here