Trading Diary: April 1st – April 5th

by Enis April 7, 2013 6:33 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was April 1st through April 5th:  


Monday April 1st:

Action: Bought the HLF ($37.25) May 40 straddle to close, Sold the May 27.5 / 52.5 strangle to close, Paid $6.50 for the structure, for a net gain of $1.35

Enis:  This is a trade that worked well due to time decay, but did not behave as well as I had expected from an implied volatility standpoint.  In short, realized volatility in HLF decreased significantly after I initiated this trade, as the headlines faded away after the big hedge fund brawl, and there have been no fundamental updates from the company.  But implied volatility did not decline along with realized volatility, likely a result of traders anticipating future flare-ups again in the name.  More importantly for my trade, the evidence against HLF continues to stack up, and Icahn’s inability to attract other buyers to the name made me less comfortable holding a short volatility position in the short-term.

Read here

Action: AAPL ($435) Sold to close the April / May 460 Call Spread at 7.75 for a .75 gain.

Dan:  Our timing in looking up in AAPL was fairly decent, but without committing to a directional trade with significant delta exposure, we needed time to start to work in our favor as the stock approached our strikes.   After AAPL’s nearly 10% rally since initiating the Calendar spread and the stock’s subsequent decline back through the level where we initiated the trade,  I decided to close the trade for a small gain as the stock felt as if it was destined to make a new 52 week low (it came with .68 of doing so on Friday).  This trade was predicated on the hope that AAPL would announce a broader cash distribution plan and the stock would re-test near term resistance, but the enthusiasm subsided as it became apparent that an announcement was not imminent.  Once we had gains on the trade, we made the decision that we would not let it turn into a loser.  Read here

TRADE: WFM ($85.40) Bought May 83 / 78 Put Spread for 1.30

Dan:  It has been our belief for the better part of 2013 that sooner or later the payroll tax increase, $4 gas at the pump and continued high unemployment would impact the American consumer, which at this point, aside from the FED, seems to be the last leg the global economy has to stand on.  Since reporting disappointing earnings in Feb, WFM has massively underperformed the broad market, and many of its peers.  The technical set up, coupled with our generally bearish near term stance made defined risk shorts exposure attractive in WFM.  This is a position that was a quick winner, but I have this one on a close leash and will look to close when it appears to be oversold on a near term basis.  Read here

Tuesday April 2nd:

Action:  BBY ($21.60) Buy to close the Apr 23 / 25 Call Spread for $0.25 for a $0.50 gain

Enis:  This was a trade predicated much more on short-term technicals than long-term fundamentals.  I still think the long-term fundamentals are challenging for BBY, but my trade was based much more on the extreme overbought nature of BBY to start 2013.  However, BBY’s upward momentum was so strong that my plan was to exit this short-biased trade on the first pullback.  Fortunately, we got that early in the week and I got out.  By the end of the week, BBY actually closed around $25 after the Samsung partnership news got buyers excited once again.  The setup is less attractive in either direction with the stock comfortably above previous resistance around $23.50, but I will watch this name closely for future opportunities.

Read here

Action: Bought MSFT ($28.75) Apr 28 Puts for ~.20, in equal amount to my purchase on March 21st for .50, resulting in an average of .35

Dan:  With MSFT up nearly 2.5% in 2 weeks since initiating my outright April put purchase, I decided that the nearest put strike the caught Q2 earnings was too dollar cheap at .20 and decided to double down and reduce my average.  Remain convicted that MSFT will likely disappoint street expectations which could cause investors to re-think any remaining optimism regarding Windows8 on mobile, desktop and Surface.   Read here

Wednesday April 3rd:

Action: Sold to Close CAT ($83.90)  Apr /  May 85 Put Spread  at 1.22 for a .22 gain

Dan:  As I said in the trade update, had the right call on direction, but the wrong structure given the timing of CAT’s decline.  I decided to exit the trade for a small gain as I became worried that the stock could be in for a nasty sell off testing the 52 week lows which could turn the trade into a small loser.  Read here

TRADE: TSLA ($41.40) Bought the June 42 / 47 Call Spread for $1.40

Enis:  Tesla’s announcement on Monday that it would finally reach profitability caused an important long-term breakout for the stock.  I laid out a Chart of the Day post illustrating the long-term significance of the breakout, and mentioned that 40 should act as major support going forward.  I was prepared to enter TSLA on the long side if it got near 40 as a result, and it actually happened much sooner than I expected, as TSLA sold off on Wednesday on disappointment regarding their new leasing program.  On a fundamental and technical basis, I viewed Monday’s news and price action as much more important, so I used Wednesday’s weakness to initiate a new long.  My target is a retest of its prior high around 46.

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Thursday April 4th:

TRADE: FB ($26.65) Bought the April12th (Next Week) 26/25 Put Spread for .20

Dan: FB’s nearly 7.5% rally into their Mobile announcement struck me as a bit overdone, especially when you consider the recent “sell the news” history in the stock following their press events.  While I had no clue how the stock would react to the event, I was willing to commit a small amount of premium to a trade that if I got the direction had a high probability of break-even and possibly at least a double.  Read here

Action: Sold to Close IBM ($210.70)  Sold the Apr20th 215 straddle at $8.90 for no gain or loss.

Enis:  This trade was much more of a success than the outcome indicates.  That’s because IBM neither broke out or broke down since I initiated the trade in mid-March, but I still ended up breaking even on the trade.  My thesis for this trade was that with IBM making a new all-time high, it was likely to either continue higher on its breakout, or experience a false breakout, which would lead to a fast move lower.  Instead, IBM ambled between 210 and 215 the entire time, in contrast to my expectations.  However, the benefit of my trade structure was that it did not decay as most long premium trades would do because IBM reports earnings before April expiry, and the mid-March implied volatility was too low given that event and the stock’s broader volatility.  So no gain, but no pain for a situation that went against my expectations.

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Friday April 5th:

Action: Sold to Close CRM ($163.80) Apr 160/150/140 Put Fly at $1.28 for a $0.08 gain

Dan:  Wow, talk about Christmas come early, this fly was left for dead after the over 10% rally following earnings, but the combination of a weakening broad market, and a slow drift off of the all time highs in the stock that seemed to be accelerating of late, gave me the opportunity to close this ill fated earnings trade for a small trade.  I took the money and said thank you very much!  Read here

TRADE: Bought the CMI ($111.40) May 110 / 100 Put Spread for $2.80

Enis:  CMI is a name that is particularly exposed to global economic weakness, and I’ve picked on it numerous times in the past as a result.  Continued PMI weakness this week was simply more confirmation to me that CMI’s earnings in late April are likely to disappoint once again, especially since the stock’s strength over the past 6 months has resulted in heightened expectations.  Ideally, I would take the trade off prior to earnings if the stock breaks its important 110 support level in the next few weeks, but I don’t mind holding through the event if the stock has not broken down by then, as I expect the company to report a dud.

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Action:   Sold to Close XHB (28.28) Apr 29 / 25 Put Spread at .95 for a .20 gain

Dan:  I have to give Enis a ton of credit here, I was initially very right on the original XHB trade which was the April 27/25 put spread from early March, but as the Dow and the SPX marched to new all time highs, this trade appeared to be a total bust.  But this is the part where my main man Enis came in……he  asked me if I remained convicted that XHB would be one of the first sectors to weakening if the rallied stalled, and I said yes, which he steadfastly agreed with and then he suggested rolling up the strikes.  We don’t do this often as it is doubling down, or throwing good money after bad as some say, but in this instance, selling the April 27 puts and using what was left of the premium towards buying the April 29s ended up being a brilliant way to get back to even in the eventual sell off.  With Friday’s down opening, I used the opportunity to get out of the repaired trade for a small gain.  I will look to roll out this view on a restest of near term resistance, and Yes I owe Enis a beer.

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TRADE: YHOO ($23.30) Bought May 23/21 Put Spread for .55

Dan:  We called the turn in YHOO back in September fairly well, but the stock up 45% since then seems to be discounting a whole heck of a lot of good news.  Please read our extensive posts on the matter, but without any clear improvement in YHOO’s core U.S. business on their Q1 call in 2 weeks, and with out clearly defined plan to combat moves by GOOG and FB in mobile and in social, investors could look to hit the pause button in the stock as the initial honeymoon period for CEO Mayer begins to fade.  WIth implied volatility very fair in May, long premium near the money put spreads looked attractive.

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