Trading Diary: April 15th – April 19th

by Enis April 21, 2013 4:35 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 15th through April 19th:  

Webinar Reminder: Join us Mon April 22nd @ 4:15pm as we preview AAPL’s fiscal Q2 earnings & debate trade structures.   You can register here:  

Monday April 15th:

Action: Bought the NEM ($33.90) May 42 Call for $0.10
New Position:  Long the NEM May 40 Call for $0.73

Enis:  The main reason I adjusted this position was not because I expect NEM to regain 40 in the next month, but because if NEM does rally to the 36-38 area in the next couple weeks, I want to take my position off.  And paying a dime to take off the May 42 call is risking little extra premium to give me a chance to recover more of the trade’s value.  Regardless, the timing of the initial trade was obviously quite poor.  Both gold-related trades I have done in 2013 were partly based on cheap implied volatility.  In retrospect, the best way to play gold would have been to just buy a straddle at important inflection points of support, and let the breakdown or hold of support play out as it may.  Read here

TRADE:  Buy the MON ($104.50) May 105 / 97.5 / 90 Put Fly for $1.80

Enis:  While commodity prices across the whole complex have rapidly declined over the past month, Monsanto has been one of the few commodity-related names that has held up quite well.  MON feels less of an immediate impact to its business from lower commodity prices, since it sells seeds as an input for agriculture rather than dealing in the grains themselves.  However, lower grains prices certainly have a long-term impact on MON, and given the extent of the price declines, I expect market participants to price in more of an effect on Monsanto’s growth going forward.  Also, the technical picture shows a stock likely to revisit its 97.50 support area over the next month.  If the stock does get near there, I’ll look to take this trade off.   Read here

Tuesday April 16th:

Action: Bought to Close the YHOO ($23.86) Apr 22 / 24 Call Spread for $1.46 for a $0.26 loss

Enis: When I first put on this trade, my thesis was that YHOO’s run was quite extended on both a fundamental and technical basis, so I wanted to play for a 3-5% move lower and take the trade off prior to earnings.  Since that decline never materialized, I did not want to take the earnings-related risk into the event.  I still expect some weakness in YHOO from current levels, even after the slight decline post-earnings, but the one saving grace for this trade was that I only risked a little, and only lost a little as a result.  If the outcome I had expected had materialized, I would have had a nice gain.  Read here

TRADE:  Buy the PCLN ($719) May 740/700/660 Put Fly for $8.00

Enis:  Priceline has been one of the best performing internet stocks over the past 5 years, for good fundamental reasons.  Its earnings growth has been consistently better than analysts have expected.  In fact, its valuation is actually quite reasonable (which is not the case for many momentum internet stocks) based on expected 20% earnings growth over the next 2 years.  However, the prospects for 2013 are murky since PCLN is quite exposed to Europe, and European economic struggles persist.  On the technical side, the picture in PCLN shows a rangebound situation for 2013, with 660 as support and 750 as resistance.  My range trade targets that area.  I will decide prior to earnings  in early May whether I want to keep the position or take it off.   Read here

Wednesday April 17th:

Action: Sold to Close GS ($139.90)  May 145/135 Put Spread at 4.85 for a 1.85 gain

Dan:  When I put this trade on back in the third week of March, my sense was that there was a lot of good news in U.S. bank stocks, many of which were outpacing the gains of the broad market up close to 15% ytd or higher.  While GS is clearly best of breed, the stock had topped out back in February despite the SPX marching towards new all time highs and this lack of momentum was what drew me to the trade, coupled with overzealous sentiment.  GS saw a 7.5% decline in the days around their Q1 report and my sense was that if the stock was going to hold it would be at the level it bounced from (~$140) on April 5th the morning of the disappointing non farm payrolls number.  While my cover of the bearish view might have been a tad pre-mature (stock closed near the lows of the week), I will look for a bounce to re-initiate this view as I expect Q2 will be a difficult environment for bank earnings.  Read here

Thursday April 18th:

TRADE: FXA ($103.10) Bought the June 99 Put for $0.45

Enis:  Similar to the Monsanto trade from Monday, this trade is based on commodities weakness (as well as signs of economic stagnation in China), but targeting an asset that has held up much better than most other commodity-related assets.  The Australian dollar has historically been more correlated to commodities than we have seen in the past 6 months.  I anticipate that the AUD will start to catch up to the downside if it can break the 1.0150 support area as traders stop out of long carry positions there.  Moreover, implied volatility in the AUD/USD cross is quite cheap relative to what we’ve seen in the commodity complex.  I bought June puts because 2 months should be sufficient time for the thesis to play, if I’m correct.  Read here

Action: Sold Half of the the CMI ($106.00) May 110 Put at $6.40 for a double, leave other half on

Enis:  CMI approached its 200 day ma around 103.70 this week, so I wanted to take off half of the trade for a double to lock in my original cost, and give me the flexibility to hold on to the balance of the trade over the next month given my expectation for further weakness in CMI.  After the stock’s quick decline in the past week, most importantly breaking 110 support, CMI is now down on the year for 2013, making it more likely that previous buyers try to sell any rally in the name to near that level.  Read here

Action: Sold to Close SPY ($154.18) Apr 153/148 1×2 put spread at .30 for a .60 loss.

Dan:  With a day left to April expiration, and the SPY about 1% from my long strike, time was not on my side  on this broad market bearish bet that I placed back on March 1st.  After being very wrong out of the gate, I was almost very right.  I decided to close the Put Fly and recoup a third of the premium that I originally paid for the structure.  Read here

Friday April 19th:

TRADE: XLE ($74.60) Bought the May 73.50 Put for $1.30

Enis:  If there was a theme to this week’s trading for me, it was finding areas of the market exposed to the commodity declines that we’ve seen, but with potential to catch up to the downside.  XLE was another such play, and I bought May puts outright with the intent of spreading them on a move to around 73.50 support from earlier this week.  Once again, given the broader moves in all asset classes this week, XLE implied volatility in May seems priced too cheap (around 22 when 10 day volatility is around 30, and even 50 day volatility is around 20).  Energy has been a leader to the downside this week, so any further declines in the broader market will likely see energy shares sold first as well.  Finally, oil’s fundamental and technical outlook look negative as well, based on both sky-high inventories and the weak bounce we saw this week from oversold levels.   Read here

Theoretical Trade: AAPL ($395) Buy Jan2014 400 / 500 /600 Call Butterfly for ~18.00

Dan:  IN anticipation of tomorrow’s webinar on AAPL’s Q2 earnings report (Tuesday April 23rd) I wanted to lay out an options strategy that I am considering to gain long exposure in the AAPL if the stock were to take a big dive following what many expect to be a disappointing quarter and guidance.  Internally we are debating in the money call flies vs out of the money as implied volatility ticks up to 2 year highs, long premium directional trades will become increasingly difficult to make money.  The out of the money call fly that I detailed would be one way to define a wide range to profit over the next 8 months in the event of a move back towards the $500 level with defined risk.  This is not a trade that I have put on, but we will debate different structures over the next few days as out hope is that we get some form of dramatic sell off that could signal a capitulation bottom after the stock has re-traced 45% of the gains from the all time highs made in September.  Read here


Note:  There is a natural survivorship bias in our expiring trades.  We take all of our winners off prior to expiry since we don’t take delivery of stock, which leaves only losing trades to report on expiry.  You can see all of our trades reported on the Recent Trades page.

NEW TRADE:  ADBE ($35.55) Bought the Apr 34 / Jan13 33 put diagonal for $1.15

Read initial post here

TRADE:  AMZN ($256.70) Bought the APR 240/200/160 Put Butterfly for 5.80*

Read initial post here

TRADE: WHR ($108.95) Bought the Apr 105 / 95 Put Spread for $2.40

Read initial post here

TRADE:  V (157.95) Bought the Apr 160/150/140 put fly for 2.45

Read initial post here

TRADE: DFS ($40.60) Bought Apr 42/40/38 put fly for $0.50

Read initial post here

Trade: MSFT ($28.16) Bought the Apr 28 Put for .50
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

Read initial post here