Trading Diary: March 25th – March 28th

by Enis March 31, 2013 5:53 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 25th through Mar 28th:  

Monday Mar 25th:

TRADE: BBY ($23.25) Sold to Open the Apr 23 / 25 Call Spread at $0.75

Enis:  Best Buy doubled in less than 3 months, as the company’s 4th quarter was much better than expected, and analysts and investors clearly fell in love with new management’s efficiency measures.  Fundamentally speaking, the company still has myriad headwinds as it tries to stem its market share losses to online competitors.  Also, the stock ran so quickly that it became extremely overbought on a technical basis, and overhead resistance from 2011 and 2012 is in the 23-28 area.  Implied vol also became elevated as call buying dominated option volumes in the second half of March.  As a result, I initiated a fade-the-strength trade by selling a call spread to open.

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Tuesday Mar 26th:

TRADE: YHOO ($23.46) Sold to Open the Apr 22 / 24 Call Spread at $1.20

Dan and Enis:  We turned bullish on YHOO back in the fall of 2012 due to its cheap valuation on a sum-of-the-parts basis, where the market was assigning little incremental value to the existing web business.  Since then, YHOO has rallied strongly from the mid-teens to the mid-twenties as more and more have jumped on the value bandwagon.  However, at its current level, YHOO is no longer the bargain it once was, and for further gains, the core Yahoo business needs to start to show some momentum.  We’re don’t view such a change as imminent, and the stock’s technical picture has started to tire as well.  Since it’s had such a strong run, we don’t expect weakness below the 20-21 area, so we sold a call spread instead of buying a put spread.

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Action:  Sold to Close CMI ($112.68) Apr 120/110/100 Put Fly at $4.85 for a $2.00 gain

Enis:  CMI sold off over the past couple weeks on weakness in the broader materials and industrials complex due to concerns over Chinese growth.  As it approached its 2013 support level around 110, I was looking for the best time to take off the trade, as I did not want to wait another few weeks to realize the time decay gains on this trade.  Having said that, I do think both CMI and CAT are likely to continue to be under pressure as long as BRIC equity markets and commodity markets show more weakness.  The 2009-2011 Chinese stimulus rebound is clearly over.

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Wednesday Mar 20th:

TRADE: BIDU ($87.50) Sell the June 82.5 / 77.5 Put Spread to Buy the June 92.5 / 100 Call Spread, Pay $0.45 for the structure

Enis and Dan:  With all the recent focus on $1000 price targets on GOOG, it’s been curious to see China’s largest search engine, BIDU, grind to new 3 year lows.  Concerns about competition from the upstart QIHU have played a part.  Moreover, excitement about Chinese consumer growth stories are much subdued compared to 2010 or 2011.  But BIDU still has projected earnings growth much above most U.S. internet names, and now with a valuation multiple turns cheaper.  In the short-term, momentum has finally started to run higher, though the stock is still in an intermediate-term downtrend given the downward sloping 50 day ma around 96.  A move to near 100, which is stout resistance, would be an ideal target for this trade.

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Action:  Sold to Close SODA ($49.40) Apr 45 / 50 / 55 Call Fly at $2.40 for a $0.75 gain

Enis:  SODA has traded between a tight range of 47 to 51 ever since I initiated this call fly.  The stock was less than 1% higher from where I initiated this trade, but the call fly had appreciated to due a drop in implied volatility and time decay.  Going forward, the bulk of any remaining profits from this trade, if the stock stayed in the same place, would accrue in the final 2 weeks. I did not want to risk a big move in either direction waiting for the trade to decay, so I took my profits.

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Thursday Mar 21st:

Name That Trade: BBRY ($14.25) Sell the Jan14 10/8 Put Spread to Buy the Jan14 17/20 Call Spread, Pay $0.15

Dan:  This is a trade that I am looking to put on if BBRY sells off to the $12 area on further weakness, where I think there is limited downside given the stock’s strong cash position ($4.50), existing patent portfolio, and 76 million subscriber base.  The recent earnings report allayed concerns about future cash burn, but the Z10 is not the elixir many seem to think it is.  I view it as a short-term placeholder, and the real upside for BBRY is if a bigger buyer decides to buy its large subscriber base and use the platform for more innovative purposes.

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