Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Feb 19th thru Feb 22nd:
Tuesday Feb 19th:
TRADE: HLF ($39.79) Sold May 40 straddle at $10.90, bought the May 27.5 / 52.5 strangle for $3.05, collected $7.85 net credit on the structure
Enis: This is a longer term bet that HLF is stuck between 30 and 50 over the next few months. My main view is that the heat of the initial battle surrounding the stock has passed. As a result, we are less likely to see significant headlines move the stock as violently as has occurred in the past few months. However, since HLF has been so volatile, I went out to May to give myself some more time in case there are some unexpected headlines in the interim. The story has attracted a lot of short-term traders, and I expect them to be buyers in the low 30’s and sellers in the high 40’s. This trade will take at least 4-6 weeks to appreciate significantly though, so it’s a set-it-and-forget-it trade for me. Read here
Wednesday Feb 20th:
TRADE: CAKE ($33.20) Bought the Mar 32 / 30 Put Spread for $0.45
Dan: It is our strong belief that the U.S. consumer is becoming increasingly strained with higher payroll taxes and $4 gas at the pump as our country is faced with the fairly massive headwind of fairly dramatic spending cuts by all levels of government. Heading into CAKE’s Q4 report, it was my sense that the implied move seemed fairly cheap in front of what could be a potentially volatile event if the company were to disappoint in the quarter and/or guidance. Regardless of the report, I am looking for consumer stocks that have lagged the broad market, specifically those that did not even attempt to make new highs when the SPX did earlier in the week. CAKE falls into this camp and this is the type of name I want to have short exposure in over the next month or so as I feel the market could be making an intermediate term top. Read here
Action: Sold to Close WHR ($107.50) Mar 110 / 100 put spread at $4.00 for a $1.40 gain
Enis: I took off the WHR put spread for the second time in a month. My main strategy has been to wait for a selloff that took the stock close to the 50 day moving average, and take the trade off there. I think the general trend is lower, but for a stock that had not touched its 50 day ma in 6 months, it generally pays to be nimble. Read here
Thursday Feb 21st:
TRADE: Bought the AAPL ($446) Mar15th 455 / 475 Call Spread for $5.50
Enis: This is very much a technical call. AAPL had been down 7 straight trading days heading into Thursday. More importantly, its technical setup based on the price action over the past month suggested near-term selling exhaustion. When it looked like the stock was going to hold the 440 level, I decided to get involved on the long side for a bounce over the next week. One potential catalyst that I had been eyeing is the shareholder meeting on Feb. 27th, not because I expect much concrete action out of it, but simply because traders might anticipate some commentary regarding the return of cash by management. I don’t plan to hold this trade for long, as either the stock bounces 3-5% here and I get out, or the stock languishes, and I will quickly pull the trigger if the stock breaches the $440 support area. Read here
Friday Feb 22nd:
TRADE: Bought the WHR ($108.95) Apr 105 / 95 Put Spread for $2.40
Enis: As I mentioned in the trade update above, I took off my March put spread earlier in the week because the stock was near the rising 50 day ma. But it briefly breached that 50 day ma on Thursday’s weakness, only to close above it on a heavy volume day. That weakness was encouraging to me in terms of my long-term view of more weakness in WHR, possibly below $100 in the coming month. When the stock bounced strongly on Friday, I got involved again with an Apr put spread. Read here
TRADE: Bought the XHB ($27.85) Apr 27 / 25 Put Spread for $0.45
Dan: TOL’s reaction to their Q4 results and guidance (down 9% Wednesday) should have been a shot across the bow for investors trying to get a sense for what sort of good news is already built into sectors like homebuilders trading at levels not seen since prior to the financial crisis. Aside from the homebuilders that make up a good bit of the XHB, there are many material suppliers and appliance manufacturers that are also trading at multi-year or all time highs. If the supposed housing recovery doesn’t turn into a full blown boom, this sector could be priced for perfection, this is why I looked out too April expiration to give the trade some time to play out. Read here