Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was April 22nd through April 26th:
Monday April 22nd:
Name That Trade: $NFLX, One Volatile Stock, Two Defined Risk Ways to Play
Dan: NFLX ended up having one heck of a week, after previewing the quarter I came to the following conclusion:
Here is the thing for those looking to make a contrarian play, the top 6 holders own 50% of the shares outstanding, and with almost 15% of the shares outstanding sold short, the stock will continue to be susceptible to massive short squeezes on the least bit of good news. If the company demonstrates and guides to improved margins, and the notion that they could achieve the expected earnings growth this year and next, the first print tomo morning will be above $200.
Thats exactly what you got. The first print Tuesday morning was above $200, and in a meaningful way. I laid out 2 calendars, one looking down, and one looking up. The Call Calendar would have been at least a double on the open Tues, but the Put Calendar would have been near worthless. While I thought the odds of a short squeeze were greater than that of a break-down, but did not have enough conviction either way. Read here
Tuesday April 23rd:
TRADE: AAPL (~$405) Buy June 385 / 435 / 485 Call Fly for $14.75
Enis: This was a trade primarily designed to take advantage of high implied volatility ahead of earnings. My main thought on AAPL going forward is that the stock is finally cheap enough to attract value investors, and the selling over in 2013 has likely been growth investors passing the shares on to value investors, who are less concerned about poor future growth prospects. However, since the company no longer shows the growth potential it once did, its upside is also more limited. More importantly in the short-term, there is a lot of overhead supply from the relentless selling that took place over the last 6 months, so any large rally is likely to be met by further selling. But sentiment had gotten low enough that the stock is also likely out of sellers much below 400. All of that is a long way of selling, I like targeting the 400 to 470 range over the next couple months, and might hold on to this trade for longer than originally planned (and give it more time to bleed) given the benign way the stock acted after earnings. Read here
Action: Bought the BIDU ($88.18) June 82.5 / 77.5 Put Spread to Close, Sold the June 92.50 / 100 Call Spread to Close, Net Credit of $0.61 For a Gain of $0.16
Enis: One of my biggest trading mistakes this year was selling my TSLA position instead of my BIDU position in the early part of April. In general, it pays to be more nimble with countertrend positions,a nd more patient with pro-trend positions. I should have taken my early gains on BIDU more quickly, and been more patient with my early gains on TSLA. In any case, I did want to sit through BIDU earnings given its history of poor reactions (down 7 of the last 8 quarters), so I took my small gain on a mid-week bounce and got out. I still do think BIDU might set up eventually for a value bounce, but want to give it more time to show me first.
Wednesday April 24th:
TRADE: QCOM ($66.34) Buy the June 62.5 / 67.5 / 72.5 Call Fly for $1.78
Enis: QCOM is one of the more appealing fundamental names in the semiconductor space, but its earnings reaction was a sign of a crowded trade. If you had shown me its earnings and guidance beforehand, I would not have guessed a -7.5% move over the next 2 days. Having said that, the 62.25 to 63 area is now crucial going forward, as that’s longer-term support on the stock, and around where the stock started the year. Given that I am long a June call fly, I am going to hold on to the position for now, but I’m less optimistic about an eventual move to the high 60’s at this point, and would be quick to get out around 65 if it got there. Read here
Thursday April 25th:
Action: Bought the XLE ($77.37) May 77/73.50 Put Spread for $0.80
New Position: Long the May 77 Put for $2.10
Enis: I don’t normally add to losing positions, as a losing position is generally a sign that my initial thesis was wrong. However, XLE’s sharp rally this week stopped around the downward-sloping 50 day ma, and oil’s sharp countertrend rally also found resistance on Thursday around prior support. Given the weak nature of commodity price action as a whole, I am still of the thought that energy and materials stocks are likely to continue lower once again if commodities start to fall again. In addition, XLE’s rally was strong, but it only moved back up to an area where there is a lot of overhead price action (and thus willing sellers), so I wanted to give myself room for a win if XLE can only move back down to near its 200 day ma by May expiry.
Friday April 26th:
Trade Adjustment: JNJ ($85) Bought May 85/82.5 Put Spread for .75
New Position: Long JNJ ($85) May 85 Put for 2.10
Dan: With the stock up 3% in 2 weeks since then buying the at the money May Puts, I wanted to give myself better odds of success in the event of a sell off. The gaps by the likes of BMY, PFE, PG, T and AMGN, all this past week gave me more confidence that the defensive staples & healthcare trade will get ugly with the slightest reason for an unwind. I considered rolling up and out maybe too June, but at this point I am not exactly that excited about adding to a losing trade and wanted to get the most bang for my buck in the case of a 2-3% sell off and get back to even on the trade and at that point I will look to take a longer term view. Read here
TRADE: DIS ($61.85) Sold the May 62.50/65 Call Spread at .75
Dan: While the market looks like there is little that can deny another new high, stocks like DIS that are trading at or near all time highs and increasingly looked priced for perfection could be some of the first names to be sold in the event of a broad market pull back. We are doing our best to not litter our trading books with too much long premium directional trades, this short call spread has the potential to make money if the stock goes down or side-ways. Read here