Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Mar 4th thru Mar 8th. Also if you missed it on Friday, please read CC’s post “Considering Our Options – What Structures are Working in this Market?” where he laid out the reasoning behind our recent trade strategy.
Monday Mar 4th:
Name That Trade – AMGN – Considering a “Range Trade” playing for continued strength
Enis: I debated opening this trade on Monday, and in retrospect, it would have been a good entry. I’ve been watching AMGN for the past year, and I like both the company’s performance and the stock’s value, as well as the way the stock has behaved technically to start 2013. After testing its 200 day ma, it promptly broke out to all-time highs above 90. At this point, since I have done nothing, I am going to wait for a pullback to the near the 90 level to initiate a new trade. If there is no pullback, then I will likely do nothing in the name for now.
Tuesday Mar 5th:
TRADE: DFS ($40.60) Bought Apr 42/40/38 put fly for $0.50
Enis: Discover has done very well over the past 3 years. The stock has almost tripled, and it has handily outperformed AXP and COF. Its valuation actually looks cheap in spite of the stock’s impressive appreciation, but its growth prospects for 2013 and 2014 are much reduced. They’ve already experienced most of the benefit from the improved credit profile of card customers, and loan demand is unlikely to increase appreciably based on trends over the past 6 months. The stock is also technically bound by 37 and 42, so I decided to play for a range trade targeting the middle of that recent range.
Wednesday Mar 6th:
TRADE: CAT ($89.60) Bought the Apr / May 85 Put Spread for 1.00
Dan: As the Dow Jones made a new high 4 out of 5 days this past week, there were a few noteworthy laggards in the index, none more obvious than CAT. While U.S. equities appear to be a flight to quality some with heavy earnings exposure overseas have yet to join the party. Q2 earnings will be very telling for U.S. equity markets that appear dead set on levitating at all time or 5 year highs, and for the economy that has gotten seemingly better data of late. Outright bearish single stock bets at the moment, despite the relatively low levels of implied volatility seem fruitless, Calendars look attractive in an effort to bide time and get through what could be a Q1 quarter end mark up. Read here
Thursday Mar 7th:
TRADE: SODA ($49.20) Bought Apr 45/50/55 Call Butterfly for $1.65
Enis: I was surprised by SODA’s weak reaction to its most recent earnings report in February. The stock is one of the few rapidly growing consumer names that actually sports a reasonable valuation in the current market. That’s particularly intriguing given that faddish consumer names like SODA are usually overpriced relative to consumer discretionary peers because of the excitement surrounding a new product. However, with no upcoming catalysts until next earnings, I anticipate that SODA will have a tough time breaking out past its recent high near 54.
Name That Trade: YHOO- Update
Dan: I updated this theoretical bullish trade in YHOO because we got a few questions on it and I detailed it on Options Action. The main point with a call spread risk reversal, at least from a risk management standpoint would be to cover the naked put when it no longer makes sense to stay short such a low delta or lower $ option. The stock has moved up 15% since the post on Feb 1st ( I did not put the trade on) and the naked short put is really the only risk to the trade and should be kept on a short leash. The other important decision from a risk position would be to continually weigh the gains in the call spread btwn how much time to expiration to realize the full width of the spread. When I wrote the update the structure was worth 1.20, with the max potential gain of 2.00 if the stock is above 22 on July expiration. That is a long ways away and essentially risking 1.20 to make .80, not exactly the sort of risk/reward we would target on a new directional long premium trade. Read here
Friday Mar 8th:
TRADE: TOL ($35.20) Bought April/June 35 Put Spread for 1.05
Dan: Much like CAT above, since making a 5 year high not too long ago, TOL has been lagging the broad market and its peers since its disappointing Q1 report on Feb 2oth. In fact on Friday as the the XHB made a new multi-year high, TOL closed well below the recent high and down on the day. Time spreads make sense, in an attempt to bide time through quarter end and set up to own puts for what could be a very insightful Q2 report in late April. Read here