Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was June 3rd through June 7th:
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Monday June 3rd:
TRADE: USO ($33.17) Sell the July 33.5 / 34.5 Call Spread to Buy the July 32.5 / 31.5 Put Spread, collect a $0.10 credit
Enis: Oil has been the best performing industrial commodity this year, despite its record-high inventories and global demand weakness. On a technical basis, oil has been rangebound for months now, and it is nearing an inflection point as traders all watch the tightening range. This trade is designed to play for a downside break over the next 6 weeks. Oil showed strength once again this week, but it is still within its range, and I will be looking for a move back to 31 support in USO to take this trade off.
Tuesday June 4th:
Trade: AXP ($76.78) Bought the June 77.5/ 72.5 put spread for 1.55
Dan: This one was a plain and simple delta trade. Looking for an overbought name that could be vulnerable if in fact the broad market continued to correct off of the late May highs. Nothing like being immediately right, as the stock sold off 2% in a straight-line over the next 2 days, only to have the stock rebound and rip 4% into Friday’s close. I deliberately chose and in the money spread as I do not see a strong chance of a run away breakout after the stocks 35% ytd rally, I am keeping a close eye on this one with just 2 weeks to expiration.
Wednesday June 5th:
Action: Sold to Close IBM ($203.40) June 205/195/185 Put Fly at 2.40 for a .15 gain.
Dan: I was early on the short on this one back in early May, the stocks nearly 5% sell off last week gave me the opportunity to get out of the position for a small gain. Given the stocks resilience in the face of what was a disappointing quarter and outlook back in April, I will take this result as a win. Q2 results in mid July should be very telling for IT demand, especially given the recent rotation in cyclical tech and the belief that the 2n half of 2013 should be meaningfully better than the first.
Action: Sold to close FDX (96.74) June 100/92.5 put spread at 3.50 for a 1.25 profit
Enis: FDX found support in the 96-96.50 area on multiple occasions over the past week, which was why we finally decided to take our gain on this put spread after watching for a break of the 50 day and not getting it. We still think the longer-term story in FDX is impaired, particularly given the continued signs of reduced global trade, especially in Asia. A move back above 100 might be another good opportunity for a fade trade.
TRADE: BBY ($27.20) Sold the July 26 / 28 Call Spread at $0.99
Enis: Best Buy has been an incredible stock in 2013, rising more than 100% in less than 6 months, with bursts of buying and consolidation over that period. I’ve actually had some success fading the buying bursts, mainly using technical analysis to gauge periods of buying exhaustion. This week felt like another one of those moments, and though I don’t expect a very large pullback, I liked the setup for selling a call spread for a 5-10% move lower in the coming weeks.
Thursday June 6th:
Trade: XLU ($37.28 ) Sold the June 38/36 Put Spread at 1.00
Dan: Given the relative economic weakness of emerging markets to the U.S., the lack of growth from overseas could cause the energy sector (that has held up reasonably well) to be a tad vulnerable if in fact Q2 gdp comes in light the world over. I put this short dated at the money put spread on as implied vol looked fairly cheap, especially vs the XLU which had recently seen IV spike on the 10% peak to trough correction from the recent highs in May. I decided to pair the 2 sectors as my thought is the recent weakness in the domestically foccussed “defensive” sectors like Utilities could see money flow back into them as investors once again crowd back into the “safe haven” U.S. trade and shun stocks levered to the reflation of global growth. I like the 2 sectors as a pair and chose to express the view via short premium on the XLU as IV was elevated and buy premium in the XLE as IV it looked fairly reasonable.
Action: VIX ($18.40 ) Sold to Close half of June 16/20 call spread & June 14 Put at 1.25 for a 1.25 gain
Enis: This trade structure is one that we have preferred on the VIX over the last couple of months (our May structure was similar, and expired for a small net gain despite the market moving higher over that period), since the VIX seems to have found a floor in the 13-14 area, giving this sort of structure a high chance of reward with minimal risk. On this week’s VIX spot move to near 20, which we had targeted for taking at least partial profits, we took off half of the structure. If the VIX does revisit the low teens again, we have our eye on a similar structure for July VIX, depending on where the July VIX future is trading at that point.
Action: Sold to Open the T ($35.82) June22nd 36 Call at $0.40
New Position: Long the T June22nd / July 36 Call Calendar for $0.33
Enis: My entry on the long July 36 call turned out to be quite poor, as T sliced right through the 200 day moving average on a fast move down all the way below 35. Given that weakness after my entry, I wanted to reduce my risk on the trade when T rallied back to near my entry level (and the 200 day ma), so I sold a June22nd expiry 36 call to turn my trade into a call calendar. At this point, I am rooting for T to stay rangebound between 35 and 37 until June expiry, at which point I will reassess the structure.
Friday June 7th:
Action: Sold to Close the AMZN ($276) June22nd 270/255/240 Put Fly at $1.85 for a $1.75 loss
Enis: I might soon put AMZN on my banned trading list, as I have had little success trying to fade strength in this name, despite many signs of technical weakness building over the last 6 months. On Friday, AMZN moved above the recent 1 month high, which was my signal to get out of my put butterfly rather than leave it on as a bit of a hail mary trade, as it only has 2 weeks left until expiry and needs a 4% move lower just to break-even. Certainly possible, but the odds have moved starkly against me, and I took the loss as a result.
Name That Trade Against Long Stock Position: AAPL ($440) Buy Aug 475/500 1×2 Call Spread for Even Money
Dan: It seems that the investment world is united in their belief that AAPL has bottomed, and it seems once again that everyone is long. The trade structure that I laid out on Friday for long holders is a levered way to add nearly 5.5% of yield for no cost if in fact the stock moves back to $500 over the next 2 and half months. If the stock does not reach the long call strike then the ratio spread will expire worthless and you are left the profit of loss from the stock under $475.