Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was May 13th through May 17th:
Monday May 13th:
ACTION: Sold to Close BBRY ($16.03) June 22nd / July 14 Put Calendar at .60 for a .05 gain
Dan: Closing this trade had little to do with my thoughts towards BBRY’s success with their new phones, but more to do with the fact that the high concentration of long holders, and the high short interest could cause the stock to become in vogue so to speak with those hell bent on causing short squeezes in other stocks with similar characteristics (see TSLA, SCTY, GMCR, FSLR to name a few)
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Tuesday May 14th:
Action: Sold to close FXA June 99 Put at $1.35 for a $0.90 gain
Enis: I closed this trade for a triple, and I was likely early. The Australian dollar has been on a one-way train lower for the past 2 weeks. In fact, it’s the most oversold it has been vs. the U.S. dollar in the past 5 years. I view this move as the start of a longer-term selloff in the Australian dollar. A confluence of trends, including weaker commodity prices, weakening Chinese growth, and a much lower interest rate differential vs. the rest of the world, have coincided, leading to aggressive selling of the country’s currency. I’m more surprised that it took this long for sellers to emerge, as I have been expecting weakness in the Australian dollar for over a year now. But now that the sellers are here, I don’t think it’s a one month move. I sold the puts because of how one-way the selling has become, but I would welcome a bounce in FXA to get involved on the short side again.
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TRADE: FDX ($100.22) Bought the June 100 / 92.50 Put Spread for 2.25
Enis: The market’s broad rally in May has taken the laggards higher as well. Fedex is one such laggard, who reported a dismal earnings number in March, and saw a rapid 15% selloff following that report, only to bounce back on the market’s strength rather than any individual news related to its business. In fact, headwinds persist for FDX going forward, as international growth continues to disappoint, and the strength of the dollar in the past month is just one more earnings difficulty that FDX will have to contend with in its June earnings report. In short, business trends are not in FDX’s favor at the moment, so I used the recent bounce to play for a return of the sellers around the important $100 psychological level. Also, June options capture the next earnings event, which is another potential catalyst for this trade to play out.
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Wednesday May 15th:
Action: Sold to close the JCP ($19.03) June 16 / 20 Call Spread at $2.33 for a $0.99 gain
Enis: I think the JCP story has turned after years in the doldrums. That’s not to say that I expect a miraculous turnaround in the business. But I do think there are significant shifts underway that mark the low in April as likely a long-term low. Most importantly, the company has improved its cash flow position through its bank financing deal (announced right after the Soros equity stake of 8%), and has returned to its discounting strategy of years past to win back its old, value-focused customers. Again, these are not revolutionary developments for the company, but expectations are so low, and investors are so used to bad news as the default in this name, that any hint of good news is enough to give buyers control over the sellers. The technical picture is one of buyers finally becoming more aggressive than sellers, and if the sales picture does start to improve (of which there are hints in May), then the stock is likely building momentum to make a nice run higher over the next 6 months. I sold this call spread ahead of earnings since it had a nice gain over the past 2 weeks, but I am a buyer back around the $17.50 level on the right setup.
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Action: Sold the CSCO ($21.23) May18th 21 Straddle at .92 for a .28 loss.
Dan: When I initiated this trade my thought was that CSCO’s laggard status could cause one of 2 things, either under-performance in a broad market sell off, if and when it ever came, or benefit from the rotation of late into old tech with strong balance sheet & high dividend yield (see AAPL, IBM, INTC & MSFT in the last month). Owning the straddle essentially gave me the opportunity to own a move in either direction in front of an earnings event that should have helped keep the implied vol bid in the options. I closed the day of earnings as I did not have high conviction for an outsized move one way or the other and the play was really getting what I felt was a cheap look in the 2 weeks prior to the print.
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TRADE: Sold the VIX (12.87) June 14/12 Put Spread to Buy the June 16 / 20 Call Spread, Even Money
Enis: As the S&P 500 index hurdles higher, I don’t want to play the game of trying to call a top. Emotions are running high, and excited psychology can lead to extended moves on the upside just as it can lead to panics on the downside. However, I am of the opinion that we are likely to see a nasty bout of selling at some point in the next month given how stretched this upside move has become. So I wanted to get long exposure to the VIX without paying premium for it. My plan is to exit this trade on the first move into the high teens in the June VIX futures. That way, I don’t have to guess whether the selloff in the SPX index occurs from 1650, 1675, or 1700. I just need to be there for the first bout of downside volatility.
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TRADE: AMZN ($265.80) Bought the June22nd 270/255/240 Put Fly for $3.60
Enis: The mood in AMZN seems to have finally changed after its last earnings report. Sellers seem to have become more aggressive in this internet giant over the last 3 months. The stock has stalled even as the broader market has been on a tear, signaling to me that growth investors in the tech arena might be losing some patience with AMZN on the earnings front. Regardless of the reasons for AMZN’s stall, I like the technical setup, where the 245 to 275 range seems likely to hold, particularly given the sharp reaction from the 275 level after earnings.
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Thursday May 16th:
TRADE: FXC ($97.87) Bought the June 97 Put For $0.60
Enis: Long the U.S. dollar is my favorite macro theme for the next 6 months. I decided to initiate a trade short the Canadian dollar vs. the U.S. dollar because of the important long-term technical setup, as well as the renewed weakness in commodity prices, which should hurt both the Australian dollar and the Canadian dollar (but the Australian dollar is so oversold that it’s not a good entry point). In addition, the implied volatility on the Canadian dollar is quite low if this is in fact a potential long-term inflection point for the currency cross. I will continue to look for other opportunities in long dollar trades on pullbacks across the FX universe.
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Friday May 17th:
TRADE: WMT ($77.62) Bought the Sept 80 call for $1.51
Enis: WMT reported a weak earnings number this week, and promptly sold off from 80 to 77.50. However, on a valuation perspective, WMT is one of the few reasonably valued large cap consumer staples companies around, and that simple fact should support the stock despite the weak business backdrop. More importantly for my trade though, the stock settled in near the important $77.50 support level, and options in September are very cheap, so I liked the risk/reward of a long call entry on the name, particularly since I have about 4 months of time value needing only a 5% move higher to break-even on my trade.
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TRADE: TSLA ($91.74) Bought June / Sept 100 Call Spread for $5.00
Dan: The stock is in all out mania-mode and to be frank while I think it is un-investable at current levels, I think the bull story is far from over. The stock has doubled in a month, the company just raised $1 billion and the founder bought shares worth $100 million on the offering…..wow. Stories like this don’t just end in the blink of an eye, especially for a company with aproduct that could be truly revolutionary. The idea with the call calendar is that the recent offering should provide and overhang on the stock in the near term, and by selling the short dated call at over 10 vol points over the Sept that I am buying, the trade offers me many ways to win prior to June expiration with a good shot have being able to close June and sell a higher strike call in Sept to create a call spread for a play into their Q2 earnings in late July.
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EXPIRED WORTHLESS:
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.
TRADE: WFM ($85.40) Bought May 83 / 78 Put Spread for 1.30
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TRADE: Bought the CMI ($111.40) May 110 / 100 Put Spread for $2.80
Action: Sold Half of the the CMI ($106.00) May 110 Put at $6.40 for a double, leave other half on
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TRADE: YHOO ($23.30) Bought May 23/21 Put Spread for .55
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TRADE: NEM ($39.27) Bought the May 40/42 Call Spread for $0.63
Action: Bought the NEM ($33.90) May 42 Call for $0.10
New Position: Long the NEM May 40 Call for $0.73
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TRADE: XHB ($29.33) Sold the May 28 / 30 Call Spread at $1.17, Expired for loss of $0.83
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TRADE: JNJ ($82.54) Bought the May 82.5 Put for 1.35
Trade Adjustment: JNJ ($85) Bought May 85/82.5 Put Spread for .75
New Position: Long JNJ ($85) May 85 Put for 2.10
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TRADE: Buy the MON ($104.50) May 105 / 97.5 / 90 Put Fly for $1.80
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TRADE: XLE ($74.60) Bought the May 73.50 Put for $1.30
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
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TRADE: DIS ($61.85) Sold the May 62.50/65 Call Spread at .75
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TRADE: Bought the HD ($66.92) May 65 / 60 Put Spread for $1.22
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