Trading Diary: Jan 14th – Jan 18th

by Enis January 21, 2013 7:41 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Jan 14th thru Jan 18th:  

Monday, Jan 14th:

TRADE: Bought to Open the FB ($31.30) Feb16th expiry 33/30/27 put butterfly for $0.64

Enis:  In anticipation of Facebook’s mystery announcement on Jan 15th, the stock had quite a rally to start the year, making it all the way into the low 30’s.  The implied volatility also moved higher as call buying dominated options trading between the week of Jan 7th to Jan 11th.  My thought was that sentiment had gotten excessive into the event, setting up a sell-the-news situation.  I also identified the 27-33 range as likely to contain the stock over the next month, which is why I chose the put butterfly structure.  However, in the end, I chose the wrong structure.  I like this trade quite a bit, and have no plans to take it off.  But I could have done a shorter-dated trade targeting a pullback to 30 that would already be quite profitable by the end of the week.  Instead, I’m left to wait until FB earnings for this trade to really appreciate in value.  Read here

WEBINAR: Anatomy of an AAPL Earnings Trade with Options

Dan and Enis:  We walk through the various inputs that we use to structure trades ahead of earnings events, using AAPL’s upcoming event as the relevant example.  Read here

Tuesday, Jan 15th:

Action:  Sold to Close 2nd Half of QCOM ($64.25) Jan13 62.50 / 65 Call Spread at 1.65 for a 1.10 gain

Dan:  With expiration quickly approaching I decided to close the balance of this position and not take the delta risk to capture the remaining width of the spread.  Read here

Wednesday, Jan 16th:

TRADE:  EBAY ($52.59) Bought the Jan 19th / Feb 52.50 call calendar for $0.72

Dan:  Heading into EBAY’s Q4 earnings report my sense was that the implied move was a tad rich with the stock a few % away from 9 year highs.  While I did not expect a dramatic move lower on what I assumed would be at least a good quarter, I did not expect a massive gap higher either.   Calendars looked attractive by selling the weekly at the money calls to buy Feb.   Read here

Thursday, Jan 17th:

Action:  Sold to Close WFC ($34.97) Jan / Feb 35 Call Calendar at $0.41 for a $0.17 gain

Enis:  I initiated this trade ahead of WFC earnings last week, and by Thursday, much of the simple volatility benefit from the trade had been realized, so I decided to take my gain.  If I felt that WFC might have decent incremental upside from here, I might have hung on to the Feb 35 calls, but I found their overall business trends (particularly the lower NIM and lower reserve releases going forward) disappointing from their earnings report.

Read here

Action:  Sold to Close C ($41.09) Jan 41 Put at $0.20 for a $0.12 loss

Dan:  This trade came down to the wire, and with the stock trading at my strike with one day to expiration, I decided to cut my loses and close the position as I was not willing to continue a flat our bearish after the company had reported earnings.  I had to decide between playing for a one day 1% move lower that would cause my puts to be just break-even, vs the chance that the stock did nothing or went higher and have my puts would quickly be rendered worthless.  Read here

Friday, Jan 18th:

TRADE:  AAPL ($500) Bought the Jan25th 525 / 550 / 575 Call Butterfly for $3.00

Dan:  It is exactly 4 months since AAPL launched the iPhone 5 and the stock made an all time high that very day.  Since then the stock is down 29% in that period, trading at 11 month lows.  The sentiment by investors and Wall Street analysts a like has gone from euphoric to down right pessimistic.  While I fully recognize the potential for a breakdown on worse than expected results and guidance, the contrarian in me would rather play for earnings and guidance that come in above expectations and play for a near term pop to recent resistance at $550.  We looked at a lot of different structures to express this view and the call butterfly offered the best risk/reward in our opinion.  Read here

Action:  Sold to Close EBAY ($54.03) Jan / Feb 52.50 call calendar at $0.72 for even

Dan:  With Ebay’s Q4 print out of the way, and the stock under-performing the implied move, I decided to take off the position as the Feb calls that I was long came in harder than I would have expected, thus reducing the profit potential of the calendar.  Read here



Note:  There is a natural survivorship bias in our expiring trades.  We take all of our winners off prior to expiry since we don’t take delivery of stock, which leaves only losing trades to report on a major expiry, like Jan expiry.  Also because Jan options are listed well in advance of all other expireys, these positions tend to be longer dated in nature.  You can see all of our trades reported on the Recent Trades page.

Trade: WFC  Long the Jan 38 Call for $0.72

Dan:  These calls were originally part of a bullish risk reversal that I put on after the Fed’s announcement of QE3 in Sept.  Yes I actually put on a bullish position in a bank. Read initial idea here

Trade: MSFT   Long the Jan 26 / 24 1×2 Put Spread for $0.10

Dan:  Back in late October I wanted to make a low premium directional bet that MSFT’s stock would suffer in the weeks after Windows8 launched in Nov.  While I got the direction right, (the stock actually almost got to my long strike) I did not exactly get the timing right.  This was kind of a “set it an forget” trade as the premium outlay with minimal relative to the potential reward and for most of Nov and Dec this positon was actually in the money.  I considered taking it off, but with the stock hovering btwn $26 and $27 I thought there was a better than decent chance that the stock would break $26 prior to Jan expiration.

Read initial idea here

Trade: BAC   Long the Jan 9 / 7.5 1×2 Put Spread for $0.14

Dan:  Much like the MSFT trade detailed above, this ratio spread was either going to work or be an outright loser, as it ended up being.  The thought process back in late Nov was that the fiscal cliff debate would come down to the wire, which it did, and investors may take profits in stocks like BAC that had monster runs over the last 12 months, which they did in stocks like AAPL, but just not BAC.  I did have one massive disclaimer in this trade post, suggesting that I would not be Short this stock that if there was a deal or a sustained rally the stock would be above $10 in a “heartbeat”.  I liked the risk/reward of the ratio spread given the stocks inability on 3 prior occasions since Sept to get through $10 resistance level.  Read initial idea here

Trade: AXP  Long the Jan 55 / 52.5 Put Spread for $0.40

Dan:  After having quick gains in a Jan 50/55 Put spread in early Nov (here), I used some of the profits to leg into a tighter Jan put spread with the same long strike.  While this trade was profitable for most of Dec, I decided too leave it on as I expected AXP’s exposure to higher end consumers to come into investors focus as we headed towards the “cliff”.  This didn’t quite go as planned.  Read initial idea here

Trade: BA   Long the Jan 72.5 Put for $1.30

Enis:  You can read our Considering Our Options post on this trade from Thursday.

Read initial idea here

Trade: GOOG   Long Jan 680/640/600 Put Butterfly for $6.00

Enis:  This trade was designed to capture GOOG’s Q4 earnings report, but GOOG moved back its initial earnings report to after Jan expiry for the first time in 4 years, and my trade was an unfortunate victim of that change of earnings date.  It’s quite rare that such a date change happens, but it’s always a potential risk.  GOOG reports this week, and the stock is basically where I originally initiated this trade, so I might get involved again ahead of the report.  Read initial idea here

Trade: CMI   Long Jan 97.50 / 90 Put Spread for $1.54

Enis:  This was a badly misplaced macro thesis that I tried to play with a single stock options trade.  In short, I expected the initial Chinese rebound in November to show signs of fading in the winter based on trends in commodity markets and signals from Chinese lending data.  But Chinese data has only improved since then, and CMI, an industrial play closely tied to China, has had a very strong rally along with that theme.  Read initial idea here

Trade: MS Long Jan 20 Put for $0.40

Dan:  This trade was a flat out disaster, not only did a I get the direction and the magnitude of the move wrong, but the sentiment and the fundamentals seemed to be lost of my initial assessment.  Read initial idea here