Trading Diary: April 8th – 12th

by Dan April 14, 2013 7:33 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 8th through April 12th:   

Monday April 8th:

In case you missed it, Enis and I hosted a Webinar last night “Trading Q1 Earnings Season w/ Options” where we detailed our process for event trading, and used GOOG and JPM’s upcoming Q1 earnings reports as potential catalysts, while laying out a few options strategies that we would consider heading into the prints.  Watch the replay here:

Tuesday April 9th:

TRADE: XHB ($29.33) Sold the May 28 / 30 Call Spread at $1.17

Dan: After making a a good cover the previous Friday on the down opening the day of the disappointing non-farm payrolls number, I was looking for an opportunity to once again express my bearish view on the stocks that make up the Homebuilders ETF.  With the XHB up ~4% from the Friday lows, I thought I would express the view with a short premium structure rather than the April Put Spread that I was long prior.  Read here

TRADE: NEM ($39.27) Bought the May 40/42 Call Spread for $0.63

Enis:  After Friday’s massacre in precious metals, the timing of this trade was obviously not optimal.  However, since the trade is May expiry, I do think I have a shot to get out for at least even over the next couple weeks, mainly since I expect gold to at least retest its breakdown level of 148 in GLD at some point.  NEM, while it hit new lows, looks technically healthier than GLD, and SLV also did not break its 25 support level.  I do think Friday’s price action indicates a longer-term breakdown for all the precious metals complex.  In the short-term though, I will look to salvage this trade’s premium at much better levels than Friday’s close.  Importantly, I don’t think the weakness in the commodity complex bodes well as a sign of global growth going forward (oil and copper were also weak on Friday).  Read here

Wednesday April 10th:

Name That Trade: EMC

Hypothetical Trade: EMC ($23.25) June 22/25/28 Call Butterfly for 1.10

Dan:  I swear we are doing our fare share of work on stocks that we want to own in a broad market decline, and this post on EMC, with a hypothetical trade is just the sort of thing we hope to do frequently so that we will have our thesis ready when we are inclined to pull the trigger.  While EMC has dramatically under-performed the broad market, and its large cap tech peers, it may make sense to wait for their Q1 earnings report just to make sure there is not some disaster lurking as the stock sits on 52 week lows.  Read here

Trade Update CMI:

Action: Bought the CMI ($117.10) May 100 Put for $0.40
New Position:  Long the CMI May 110 Put for $3.20

Enis:  CMI reports in late April, and given the lack of strength in recent manufacturing PMIs as well as the continued downtrend in industrial commodities, I expect CMI to lower guidance for the balance of 2013.  Caterpillar has already indicated lower-than-expected sales figures to start 2013, and Deere has also mentioned weakness in demand.  CMI has moved 10-15% in a month on numerous occasions over the past few years, so paying 0.40 to take off the 100 put makes sense to me given the possibility of a big move over the next 5 weeks.  The 110 level is crucial support that, if broken, should lead to a quick move lower in the stock.

Read here

Thursday April 11th:

TRADE: Sold the VIX (12.46) May 13 Put to buy the May 16 / 19 Call Spread, Collect 0.05

Enis:  As we get into earnings season, and given the increased volatility in the commodity and currency markets, SPX implied volatility has the potential to increase from current low levels.  Moreover, SPX realized volatility has picked up in the past couple weeks, and the breakout to new highs could be a catalyst for increased volatility in both directions as traders get more emotional on each move from here.  VIX Futures are near their lows of 2013, so the risk on our entry is less than it has been for most of 2013, despite a setup that increases the likelihood of volatility over the next month.  If VIX spot gets anywhere near 20, we will be sure to at least take off part of the position.  Importantly, the position’s mark-to-market is going to follow May VIX Futures rather than VIX spot.  Read here

Friday April 12th:

TRADE: JNJ ($82.54) Bought the May 82.5 Put for 1.35

Dan:  Kind of like Tom Cruise in Risky Business, sometimes you just got to say “what the heck”, at least thats what he says in the dubbed version on cable.  This stock is the poster-child for extended technicals, extended valuation (to peers and its own historical), extended sentiment, and with implied vol as cheap as it is heading into next week’s earnings, we just had to buy some at the money puts in May with the stock just a few nickels from its all time highs. I believe that if we ever get a decline in the broad market, that some of the crowded defensive trades will not act particularly well.   With options this cheap with an event & the market at all time highs, I believe there is a high probability that risking about 1.5% of the underlying stock price will lead to at least one opportunity to make money on this trade in the coming weeks.  Read here

Action: Sold the TSLA ($44.60) June 42 / 47 Call Spread at $2.10 for a $0.70 gain

Enis:  When I bought the TSLA call spread on its pullback from all-time highs on April 3rd, my plan was to exit on a retest near those prior highs.  The price action this week gave me that opportunity, so I exited the position.  If TSLA does come back down to the 40 level at any point over the next few months, I will likely re-enter a long biased position.  Read here


Expired Worthless:

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

Dan:  I am trying very hard not to make binary long premium plays around events, especially with short dated options, because you have very few chances to get out in one piece if you are wrong right out of the gate as I was with this one.  My sense was that FB’s 7% rally into their Mobile announcement was likely to be perceived as a “sell the news” event and I wanted to look for a low premium way to play.  Risking .20 to make .80 if the stock re-traced the previous weeks move seemed like as dollar cheap way to play as possible.   While I am trying very hard to not let long premium trades expire worthless, I did not think selling the spread for pennies made sense and decided to hold.  Read here