Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was May 20th through May 24th:
Monday May 20th:
Name That Trade – GDX
Enis: Gold and silver are down around 20 and 25% respectively in 2013, large moves for only a 5 month period. Silver has fallen so far that it is starting to look interesting as a potential bounce play, thought I’m a bit wary of trying to step in before it shows more stability. The $20 level on SLV was long-term resistance for many years, and as a result, it’s an obvious level of long-term support that should attract some buyers. However, given the significant amount of overhead supply in gold and silver at these levels, I am more interested in a potential long position on GDX. High implied volatility, though, has kept me away from an options trade in the ETF for now.
Tuesday May 21st:
TRADE: NTAP ($36.40) Buy the Jul 35 / 40 / 45 Call Fly for $1.48
Dan: After previewing NTAP’s fiscal Q4 earnings report (here), with an eye towards some of their peer’s recent results/guidance, and activist investor Elliot Management’s recent stake in the network storage provider, my sense was that financial engineering would likely be more of a positive catalyst in the near term for the stock rather than actual financial results. I chose to get long exposure with an in the money call spread as I was not interested in taking risk from a vol perspective, but believed that the near term downside could be muted as existing investors played a game of wait and see with the entrance of the new activist.
Wednesday May 22nd:
TRADE: FXE ($128.10) Bought the Sept 128 put for $2.60
Enis: I have mentioned on several occasions in the past couple weeks my bullish U.S. dollar stance for the rest of 2013. The commodity currencies have been the first to fall, with the Aussie dollar down almost 10% in the past month, and the Canadian dollar down 3% in the past couple weeks. But the Euro has remained unusually strong in that period. Aside from my long dollar bias vs. all currencies, I chose the Euro for 2 main reasons: 1) the continued weakness in European macro data; 2) Draghi’s suggestion that negative rates might be in store for the future for the Euro. EUR/USD was rejected from the all-important 1.30 level intraday during Bernanke’s testimony, and I anticipate that will be crucial resistance in the short-term.
Thursday May 23rd:
TRADE: CMI ($117.05) Bought the July 115 / 105 Put Spread for $2.70
Enis: I’ve had CMI on my radar ever since its weak earnings report on Apr 30th. The stock has basically been in bounce mode ever since, despite more reports of global industrial weakness on a micro and macro basis. I finally decided to get involved on the short side again after this week’s major market reversal, though I bought a July put spread to give myself plenty of time for the thesis to plan out. The strike selection was designed to target the 200 day moving average as my exit level, currently around 106.50.
Action: Sold to Close AAPL ($444.50) the June 385 / 435 / 485 Call Fly at $24.75 for a $10 gain
Enis: This was a nice gain from a trade that I initiated just prior to the earnings report in AAPL, with the thought that we were close to a bottom in the stock, and implied volatility was quite elevated considering the buyback program in place. With the trade’s appreciation, and still 1 month until June expiry, I would have to wait at least a couple weeks for the trade to start appreciating considerably, as it’s mostly a time decay trade when it sits near the middle strike of 435. As a result, I decided to take the trade off, and will be on the lookout in the next selloff in AAPL stock for a new AAPL trade that is also short volatility and long delta, but likely farther out in maturity.
Friday May 24th:
Name That Trade – TGT
Enis: While Target had a bad earnings miss this week, and the stock was down 4% on the report, it actually recovered well on Thursday and Friday. My long-term view on TGT is that fund managers view it as a defensive name, so they are willing to rotate into the name on weakness, particularly since it’s valued much cheaper than the staples and utilities sectors that fund managers have preferred for defensive exposure (health care is more reasonably priced). A selloff in TGT to the 65-66 area that is longer-term support would provide a good entry for a long delta position – likely just a 3-6 month long call position given TGT’s cheap implied volatility.