Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Jan 22nd thru Jan 25th:
Tuesday Jan 22nd:
TRADE: GOOG (~$704) Bought the Jan25th / Feb16th 725 Call Calendar for $3.60
Enis: My original thought on this trade was as a low risk way to play for a bounce in GOOG given the lowered expectations as the stock sold off 5% in the week prior to the event. The push/pull factors for GOOG seemed evenly balanced, with the decline in pricing in the online advertising market offset by market share advances by GOOG in the mobile market. As a result, I bought the 725 call calendar as a low risk way to play for a modest earnings bounce. The long-term story will depend on GOOG’s ability to transform its numerous investments outside of its traditional online ad business into profitable franchises that will diversify its earnings structure. For now, the outcome of that story is yet to be seen.
Wednesday Jan 23rd:
Trade: Bought the NFLX ($103.50) Jan25 / Feb 90 Put Calendar for $0.89
Enis: Would have rather not done this trade in hindsight of course, as it quickly turned worthless after NFLX’s massive beat after the close. However, given some of the incredible moves NFLX has made in the past, I specifically did this trade as a smaller-than-normal position that was much more speculative than the usual trade structures, with the thinking that if the earnings were a miss, the down move wouldn’t be drastic given the high short interest and more stable investor base (Icahn involvement, etc). If the stock missed, I felt I had a good chance to more than triple my money, but knew that I was taking a 50/50 chance on that outcome. In any case, the final outcome was a quick loser, but that’s why we look for good risk/reward trades on speculative situations. In the end, I only risked the initial 0.89 of premium.
ACTION: Sold to Close Half of AAPL ($514.30) Jan25th 525/550/575 call fly at $6.00 for a $3.00 gain, remain long the other half with cost base of $3.00
Dan: While I was clearly in the camp that AAPL’s Q1 earnings event had the potential to be a binary event, meaning up or down 5-10%, I was more inclined to play for a bounce post the results given what I felt was increasingly negative sentiment. My tune on the stock had not changed as I felt any rally would be met with sellers, I was willing to play with defined risk. Heading into the close, prior to the earnings announcement I sold half of my position for a double, thus risking nothing into the event. Read here
ACTION: Sold to Close the GOOG ($743.50) Jan25th / Feb16th 725 call calendar at 5.60 for a $2.00 gain
Enis: Though this was a nice one-day trade, my main frustration with this structure is that I did not go with my original thought, which was to buy the 735 or 740 call calendar instead of the 725 call calendar. The 735 or 740 calendar would have targeted the implied move in GOOG, which was slightly more than 5%. I chose the 725 strike because most earnings reports prior to GOOG had been underperforming their implied move, but that rationale ended up being too cute. When in doubt, simply targeting the implied move for the calendar strike is likely a good lesson for the future.
Thursday Jan 24th:
TRADE: SPY ($149.05) Bought the Feb16th 149.00 Put for $1.60
Dan: With equity markets the world over seemingly melting up, and volatility measured by the VIX and the related futures massively depressed, at the money Puts in the SPY are unusually cheap. While most earnings data appears encouraging, my sense is that we are likely to get a pull back in the coming weeks merely because very few expect it, this will be a position that I leg into over a week or so, but I fully acknowledge the potential that the SPX just continues to gradually melt higher. I am not digging in and trying to pick a top, merely taking a defined risk shot of a reversal in then next few weeks. Read here
Friday Jan 25th:
Trade: HLF ( $44.50) Buying Feb / Mar 40 Put Calendar for 1.50
Dan: After being mesmerized by the Ackman/Icahn debate on CNBC on Friday afternoon, my conclusion was picking a side of one of the heavyweight investors from a directional standpoint seems like a fools errand, but rather playing for next volatility event could be the trade. I wanted to sell Feb options that go well bid on Friday and own March that I feel will get bid into the company’s Q4 earnings on Feb 19th (march expiration). Read here
Name That Trade: This is a theoretical structure, not a trade that we put on.
TRADE STRUCTURE AGAINST LONG:
FB ($31.25) Buy Apr 35/38 1×2 Call Spread for Even Money
Dan: This is a classic leveraged overwrite for long holders of the stock. Read here