Trading Diary: Feb 4th – Feb 8th

by Enis February 10, 2013 7:39 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Feb 4th thru Feb 8th:  

Monday Feb 4th:

TRADE: C ($42.57) Bought the Mar 41 / 39 Put Spread for $0.44

Enis:  European bank weakness caught my eye to start the week.  Add that to the risk-off signals from other global markets, such as Brazil, Korea, or India, and my radar went on high-alert.  In the end, I settled on this C put spread because of Citigroup’s diversified global operations as well as its relative weakness among the large cap banks in the U.S. over the last couple weeks.  I traded March because implied volatility was quite cheap, especially considering the volatility in other global equity markets last week.  The trade only needs one big down day to be nicely profitable.

Read here

Tuesday Feb 5th:

Name That Trade:  DIS ahead of earnings.  We did not put on any actual trades.

Dan:  We laid out a few potential trade ideas ahead of DIS earnings.

Read here

Wednesday Feb 6th:

Action: Sold to Close Second Half of FB ($29.10) Feb16th 33/30/27 Put Fly for $1.55 for a $0.91 gain

Enis:  I wasn’t willing to wait another week and a half for this trade to decay given the increased recent volatility in FB.  As a result, I used the two-day bounce in FB to get out of the second half of my fly.

Read here

Action: Sold to Close WHR ($109.95) Mar 110 / 100 Put Spread at $3.30 for a $1.10 gain

Enis:  This was a case where the trade went so well so quickly, I decided to take the trade off to lock in the quick gain.  My overall thesis on WHR has not changed, but I want to see how the stock acts now that it’s sold off from its recent high.  If we are fortunate to see the stock retest that level, then I’ll likely re-enter a put spread position.

Read here

TRADE: V ($160.00) Bought the Mar 160 / 150 / 140 Put Fly for $2.15

Enis:  Visa is a name with which I am intimately familiar.  It’s a fabulous company, a cash cow, and both MA and V have a large competitive moat around their core payments processing business.  However, valuation has gotten quite extended in the past few months, to the point where the market is expecting near-perfect execution over the next year.  After MA reported stellar earnings and couldn’t rally, I decided on the March put fly in V as a good risk/reward trade to play for a short-term pull back from its overextended position.

Read here 

Thursday Feb 7th:

Action: Sold to Close HLF ($36.75) Feb / Mar 40 Put Calendar at $2.00 for a $0.50 gain

Dan:  Since entering the HLF Feb / Mar 40 Put Spread almost 2 weeks ago, HLF stock has been on a wild ride, having sold off some 33% and then rebounding 20% since.   With the stock getting back towards my break-even, the trade has become profitable and I am going to close the position and look for ways to express a short view on the next pop above 40, with defined risk of course.

Read here 

TRADE: Bought the GLD ($162.51) Mar 165 call for $1.37

Enis:  GLD implied volatility is near 3 year lows.  Given that GLD has traded in a tight range for a couple months now, with low realized volatility, I wouldn’t normally be interested in buying options in such a situation.  But GLD has been tracing out a compressed triangle on its chart that seems poised for a break higher or lower within the next couple weeks, so I decided to buy March options.  I ended up settling on calls because of GLD’s resilience this week in spite of the dollar’s strong rally, which would normally send GLD much lower since it trades inverse to the dollar in most cases.

Read here

Friday Feb 8th:

Trade: HD ($66.92)  Bought the May 65 / 60 Put Spread for $1.25

Enis:  Similar to the WHR and V trades that I put on in the past week, HD is a case of a company that has performed quite well, but one whose valuation suggests that investors and traders have priced in all the good news and then some.  HD’s P/E is at 10 year highs, which is especially remarkable considering that this 10 year period includes the height of the U.S. housing bubble.  HD is a more efficient company, and does quite well converting 3-5% sales growth into exceptional earnings growth year after year.  However, add its stretched valuation to a risky technical setup, as the stock nears its all-time highs near 70, and the risk/reward setup for the put spread is favorable.

Read here