Trading Diary: Jan 28th – Feb 1st

by Enis February 3, 2013 3:59 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 28th thru Feb 1st:  

Monday Jan 28th:

TRADE: YHOO ($20.30) Bought the Feb1st 21/20/19 Put Butterfly for $0.27

Enis:  I wanted to take advantage of elevated implied volatility in earnings to play for a rangebound result after the earnings call.  The reasoning behind my thesis was both fundamental and technical.  Fundamentally, YHOO’s sum-of-the-parts “cheap” valuation no longer seemed so cheap with the stock above $20, limiting upside from a simple valuation perspective, but also providing a downside buffer given that the plan to realize the value in Alibaba and Yahoo Japan was on track.  Technically, the 19 and 21 levels set up as simple support and resistance.  Finally, YHOO’s implied move of 5% was above its 8 quarter average move on earnings.  Read here

Tuesday Jan 29th:

ACTION: Sold to Close YHOO ($20.20) Feb1st 21/20/19 Put Butterfly at $0.60 for a $0.33 gain

Enis:  When YHOO sold off to near the $20 level after its initial earnings pop, I decided to take my trade off on Tuesday morning.  I debated leaving the trade on until Friday, given that the $20 seemed like an obvious magnet.  However, the open interest on the weekly $20 options was not that large, and I would have had to wait 3.5 trading days to realize the remaining value on the butterfly, and that’s assuming the stock stayed within 19.60 and 20.40 by Friday.  As a result, I ended up taking the trade off at 0.60.  In these situations, the best course of action is either to take the trade off right after the earnings vol crush, or just wait it out until Friday.  Waiting on Tuesday, only to take the trade off Wednesday or Thursday would expose me to more risk with little benefit, as the decay was minimal on this trade for those two days.  Read here


Name That Trade:  This is a theoretical structure, not a trade that we put on.


AMZN ($270) Sell Feb1st 290 call, Buy Feb1st 250 put, for even

Dan:  This is a classic collar for long holders of the stock.  Read here

Wednesday Jan 30th:

Trade: Bought the FB ($31.16) Feb1st / Mar 34 Call Calendar for $0.65

Dan:  Heading into Q4 earnings that evening I felt that the implied move was a bit steep at 10% and that while the chances of a meaningful beat and raise were not great, either was a miss.  With the stock up to 31 from 18 back in Nov, there is obviously a good bit of good news built into the stock at current levels.  The Feb weekly options were amazingly expensive, and no matter what your directional bias they were a great sale.  At one point on Thursday, after being down 7% in the morning, the stock made back all of the losses and was actually up on the day.  I had the opportunity to get out of the position for a small loss, for most of the day, and for a gain for a bit in the afternoon (read Considering Our Options here) but I decided to hold onto to the March 34 Calls as I expect the shares to regain their bullish footing in the weeks to come.  I will look to spread these calls on a rally above 32.  Read here

Thursday Jan 31st:

TRADE: QCOM ($66.50) Bought the Apr 70/65/60 Put Butterfly for $1.50

Enis:  The semis sector has been struggling in the past 6 months in spite of a strong market, but QCOM has been best in breed with its focus on the mobile space.  Though it has been held down a bit by AAPL’s weakness, only 6% of its revenues are from AAPL, and its earnings beat on Wednesday demonstrated the strength of the balance of its business and the benefits of diversification.  Having said that, it’s a $115 billion market cap semiconductor company, and I think it will have difficulty breaking its longer term resistance level around 69.  With that in mind, I wanted to play for a rangebound result over the next couple months, targeting its $65 support area as the midpoint.  Read here 

ACTION: Bought to Close STZ ($32.50) Feb16th 35 straddle for $3.35, sold to close the Feb16th 30/40 strangle at 0.35, paid net debit of $3.00 to close the structure, for a $0.40 gain

Enis:  My STZ range trade was initially a winner after earnings in early January when the stock fell back to the $35 level, but that didn’t last long.  Speculation about approval of the Crown Imports deal caused STZ stock to break out to all-time highs, and options buying caused implied volatility to rocket higher as well.  So the trade had been a mark-to-market loser until Thursday, when the Dept of Justice announced that it was against the Budweiser-Grupo Modelo merger.  That put the Constellation-Crown Imports purchase at risk too.  With the stock stabilizing around $32.50, Feb implied volatility moved lower, and made my structure a winner.  I took the gains in the afternoon, feeling lucky about the whole experience.  Read here

Friday Feb 1st:

Trade: WHR ($103.75)  Bought the Mar 110/110 Put Spread for $2.20

Enis:  WHR traded only 3% from all-time highs on Thursday after its earnings report and higher guidance for 2013.  The company and stock have benefitted from a well-executed restructuring program that has improved margins, and the market has rewarded the stock with its highest P/E valuation multiple in the past 10 years.  However, that high valuation likely sets up current investors for disappointment.  Add to that the tired technical nature of the chart, and the cheap implied volatility of the options prices, and I bought a March put spread to play for a short-term pullback.  Read here

ACTION: Sold to Close Half of FB ($30.00) Feb16th 33/30/27 Put Butterfly at $1.52 for a $0.88 gain, remain long other half at cost base of $0.64

Enis:  I placed this trade with the thought that $30 was a magnet for Facebook, with support around 27-28, and resistance around 33-34.  Technicals appear more important for a stock with little fundamental history and few companies against which to compare valuation, and the stock has indeed behaved well with respect to the technical set up.  After earnings, with implied volatility moving to the mid-30’s, and the stock around 30, I wanted to lock in my gains on half the trade.  I will try to hold the other half for as long as possible to capture more incremental decay.  My rough stop to take off the other half is probably if the stock breaches 27.50 to the downside or 32.50 to the upside.  Read here


Name That Trade:  This is a theoretical structure, not a trade that we put on just yet.


YHOO ($19.65) Sell the Jul 18 Put, Buy the Jul 20/22 Call Spread, Even Money

Dan:  This is a trade I will look to do on a further pullback in YHOO closer to the $18 level Read here