Trading Diary: March 18th – March 22nd

by Enis March 24, 2013 8:38 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Mar 18th through Mar 22nd:  

Monday Mar 18th:

Action:  Sold to Close QCOM ($64.00) Apr 70/65/60 Put Butterfly at $2.50 for a $1.00 gain

Enis:  This trade worked out nicely over time, as QCOM stayed within the 60 to 70 range that the trade was targeting.  Main reason for taking it off was that there was not much appreciation likely to take place in the trade for the next 2 weeks (the bulk of the decay will be in April), so I didn’t want to take the risk without much reward in the near term.

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Action:  Sold to Close TOL ($33.80) Apr / Jun 35 Put Calendar at $1.00 for a $0.05 loss

Dan:  As TOL got further from the strikes in my Calendar, I was worried (in hindsight wrongly) that the stock could breakdown and make a quicker than expected move back towards support in the $31 range.  I decided to close this position to give me the ability to identify a more directionally bearish structure.

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Tuesday Mar 19th:

TRADE: FDX ($106.76) Bought the Apr 110/105/100 Put Butterfly for $1.35

Enis:  My thesis on this trade was that FDX made a long-term breakout above the 100 level that led to a strong start to 2013, but the fundamental backdrop was more precarious, so I did not expect much in the way of further gains for FDX.  However, I also did not expect a sharp selloff in the shares after such an important long-term technical breakout.  That second expectation is what let me down on this trade, but this trade is a good lesson in process over outcome.  Presented before earnings with the fundamental, technical, and volatility backdrop that I had available, I do think the trade structure was a favorable one for such a backdrop.  So the outcome was not as I had hoped, but without knowing what would happen beforehand, the structure was a decent choice (though maybe not the best choice – CC’s COO post on Wednesday outlined others we considered).

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Wednesday Mar 20th:

Action:  Sold to Close FDX ($99.00) Apr 110/105/100 Put Fly at $1.05 for a $0.30 loss

Enis:  When FDX fell through 100 and was unable to get back above it, I decided to bail on the put fly because the main thesis was that 100 was such strong support that even on bad news, buyers could step in there for purely technical reasons.  When that did not happen, it was clear that the technical backdrop was not as I had expected.  In that case, I no longer wanted to hold on to my trade.  (That does not mean the trade might not eventually be a winner – just that it was more a flip of the coin, and I did not have good reasons left to hold on.)

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Thursday Mar 21st:

TRADE: MSFT ($28.16) Bought the Apr 28 Put for $0.50

Dan:  There just doesn’t appear to be anything at all good going on at MSFT on the product front, and the stock’s ytd performance is a daily reminder of investors indifference.  The stock is a classic value trap and the only reason i can really see owning the stock is its defensive nature, with its strong balance sheet, 3% plus dividend yield and strong free cash flow generation, the company is a utility and it’s stock trades as such.  Heading into what could be a crucial quarter in late April, implied vol seems fairly low, and this trade is more for what I guess will be downbeat earnings previews with numbers being cut for worse than expected Surface and Win8 sales.

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Friday Mar 22nd:

TRADE: GS ($146.80) Bought the May 145 / 135 Put Spread for $3.00

Dan:  Since early fall 2012, U.S. Banks stocks have been on an absolute tear, but recently losing a bit of their upward momentum.  Since the Italian elections in late February, European bank stocks have had a fairly difficult time, and it wasn’t until just this past week with the situation in Cyprus that U.S. bank stocks actually began to take note of the potential 3rd Spring in a row that could see volatility emanating out of Europe, with ground zero being the financial sector.  While GS is clearly best of breed, its valuation currently reflects that with a book value north of 1, which few other U.S. banks are able to match.  If the last few weeks of headlines actually turns itself into a mini-debate for the future of the Euro-Zone, no Bank, European or U.S., will be immune, and GS could see a 5-10% re-tracement.  Defined risk through put spreads appear to offer a better risk reward than selling premium which is not nearly as elevated as it could be if the sector starts heading lower.

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Action: Bought the XHB ($30.00) Apr 29 / 27 Put Spread for $0.30
New Position:  Long the XHB Apr 29 / 25 Put Spread for $0.75

Dan:  While i was clearly wrong (maybe just early) on my April 27/25 Put Spread, I remain convicted on the near term bearish thesis.  I don’t deny that the sector is in a recovery, but the homebuilder’s stocks valuations suggest that they are poised for another bubble.  This trade adjustment is an effort to recoup some of the losses of the previous trade at a time where it could appear that the sector is losing momentum after a period of fairly mixed earnings reports and housing data.

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