Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was April 29th through May 3rd:
Monday April 29th:
Tuesday April 30th:
TRADE: BBY ($26.70) Sold the May 26 / 28 Call Spread at $0.90
Enis: BBY has rallied from under $12 to $26.50 in 2013, an incredible move in such a short period. On Tuesday, the company announced the sale of its European business to Carphone Warehouse, and the stock caught a bid once again, making new highs for the year. The call buying to start the week had the feel of extended euphoria (5 to 1 call to put ratio). Short interest in the stock has declined precipitously so far this year, and the stock was approaching levels of prior resistance from 2011. I wanted to put on a structure that would fade that euphoria, but also give myself some time for the trade to play out, so I sold a call spread as opposed to buying a put spread.
TRADE: Bought the CSCO ($21) May18th 21 Straddle for 1.20
Dan: With the market near all time highs, with an ongoing rotation out of defensive sectors and into laggards or cyclical tech, CSCO appears to be a decent long premium play with earnings yet to come and implied vol relatively low. and a little more than 2 weeks to earnings, our sense is that the at the money straddle will stay relatively well bid and you almost get a “free look” at a broad market move or a stock specific move based on recent rotation trends as CSCO is one of the few large cap tech stocks with a 2.5% or greater div yield that has not seen a material move in the last few weeks.
Wednesday May 1st:
TRADE: JCP ($16.20) Bought the May (regular expiry) 16 Call for $0.92
Enis: Dan mentioned JCP as a potential long position on the morning of April 25th, and we started writing a post on our thoughts with plans to initiate a new long position on April 26th. However, the announcement of a new 8% stake by Soros occurred right after the close on April 25th, so we were not able to enter our long position at the price we had chosen. Instead, we watched the name for the next few days, and finally had a chance at a decent entry on Wednesday. The technical setup was also quite favorable given that the stock had sold off on much lighter volume than its initial, rapid rise, added to the fact that the Soros stake and the Goldman refinancing were both positive data points that did not exist when we were initially considering a trade on April 25th. But the technical setup is mainly why we chose to buy a shorter dated call outright rather than another structure.
Trade: FB ($27.50) Sold May 3rd weekly 26/25 – 28.50/29.50 Iron Condor @ .58
Dan: Heading into their Q1 earnings it was our sense that the stock would not realize the high earnings implied move of about 8.5% given what we felt was little potential for a material beat and raise report. Selling the move with defined risk via a condor seemed like a low risk potentially high chance of reward way to play.
Thursday May 2nd:
Action: (FB $28.68) Buy to Close May3rd Weekly 28.50/29.50 call spread for .33 (if the stock closes above $26 then the trade will be profitable by .25)
Dan: FB’s initial muted reaction to their earnings report, and less than 2 days to weekly expiration had us feeling pretty good about leaving this trade to expiration without any adjustment, letting both spreads expire worthless with us realizing the full profit potential of the trade without having to trade out of it. The stock started to run a bit Thursday afternoon and we thought it best to close the call spread and avoid having the trade go down to the wire on Friday expiration. In hindsight the stock closed below our short strike but we did not feel with the news out and the market apparently poised for new highs that the risk / reward made sense to leave on considering we already had a winner.
Action: Sold the PCLN ($700.99) May 740/700/660 Put Fly to Close at $9.25 For a Gain of $1.25
Enis: In hindsight, I probably should have just chosen to sell a call spread rather than trade the put fly as I did. The put fly was a lower risk structure, but given that I decided to trade out of the fly prior to earnings, I made a small gain despite the fact that the stock had moved to my short strike of the fly from the time I initiated the trade. In any case, I did decide to close out the fly when I did because of the poor precedent set by EXPE, as well as the weak reactions to earnings by other internet large caps, like EBAY and AMZN.
Friday May 3rd:
TRADE: IBM ($204.85) Bought June 205/195/185 Put Fly for 2.25
Dan: As I stated above, old tech has seen a massive inflow of interest in the last couple weeks given their laggard status, strong balance sheets and high dividend yields. Since reporting disappointing earning back in April and gapping down on the news, the stock has since filled in the earnings gap and approaching some serious technical resistance. We thought this was a great entry point for a short trade and that a butterfly offered the most attractive risk / reward for a re-test of the previous support.
Action: Sold the JCP ($17.17) May 16 Call at $1.46 for a gain of $0.54
Enis: JCP rallied 8% from midday Wednesday to midday Friday, and was back in the 17-17.50 area where sellers last showed up, so I took the trade off for a quick gain. However, we still like the longer-term setup for the stock to move higher based on the improving credit situation (the corporate bonds have rallied to 6 month highs) and the still-high short interest in the face of a more concentrated holders list (Ackman and Soros own almost 25% of the company now). We might be interested again on the long side on a pullback to 16, depending on the nature of the move.