Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was June 10th through June 14th:
Over the last several years it’s been the Summer months where equities and options have seen the most volatility, and thus trading excitement. Will 2013 follow suit? Join Dan and Enis as they discuss positioning for the Summer months and share trade and hedging strategies in sectors and individual names.
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Monday June 10th:
TRADE: MCD ($99.90) Bought the July 100 / 95 Put Spread for $1.43
Enis: Stock is still in a downtrend from the highs made earlier this year, despite reporting better than expected comps for most regions earlier the week, it is our belief that the stock will continue to struggle over the course of the summer as earnings will remain challenged both here and abroad as competition continues to be stiff in the U.S. and most of the rest of the world is in a recessionary environment. The relative cheapness in implied volatility, with the stock up near technical resistance at $100 made this trade look attractive from an entry standpoint.
Tuesday June 11th:
TRADE: LULU ($68.70) Buy July 65 / 70 / 75 Call Butterfly for $1.10
Dan: Despite beating earnings for the quarter, the company guided down the current quarter and announced that their long time CEO will be departing without a replacement in place. The stock took a beating, but we went back to one of the trade structures that we prefer (in the money call fly) so we could define a trading range that we think the stock should settle into once the “hate selling” is complete. We were a little early with the stock breaking below our lower long strike on Wednesday, but after the late weak bounce we are hoping the stock settles in near the guts of the fly.
ACTION: CAT ($83.55 ) Sold to Close July 87.50/80 Put Spread at 3.90 for a 1.75 gain
Dan: After a good re-entry on what is becoming a fairly routine short on rallies, and the stock down nearly $5 in a month, we thought it prudent to close the positon at the mid point of the spread despite what looks to be a weakening technical set up and possible re-test of $80 if and when the SPX breaks 1600. The stock oddly has had bouts of relative strength, and has been down and out for so long, and such an obvious under-performer throughout the rally since November, we worry that at some point investors start to discount the company’s exposure to emerging markets and start to anticipate a turn in fundamentals, prior to them actually turning.
Wednesday June 12th:
ACTION: AXP ($74.80) Sold to Close the the June 77.5/ 72.5 put spread at 2.50 for .95 gain.
Dan: After entering the trade in the prior week, AXP had a little bit of a wild ride, after immediately dropping 2% looking as if it was going to break down, and then shooting right back up to make a new all time high. Well it appeared on Wednesday that the fever broke, and at the time of closing this position, the stock was down 5% from Monday’s all time highs. After the market suffered 2 consecutive down days in row and the spread nicely profitable in the middle of the width of the spread I decided to take the money and run and look to re-short on the next bounce.
Thursday June 13th:
Trade: XLF ($19.67) Bought July 19 puts for .28
Dan: U.S. bank stocks have bee relative out-performers and appear to be impervious to most market palpitations of late. My sense is that if in fact volatility will rule the summer months, this sector will in fact once again be at the center of any summer storm. The at the money Implied Vol in July seems fairly reasonable considering how many of its components are expected to report in July expiration. I will look to spread these puts on some initial weakness and reduce my break-even.
Action: Sold to Close second Half of the VIX ($17) 16/20 call spread & the June 14 Put at 1.05 for a 1.05 gain. (paid even, sold first half at 1.25)
Enis: We closed the first half of our VIX structure last Thursday at 1.25, and with the VIX back down to the 17 level, and with the market apparently settling in a bit after the early week volatility, we chose to sell the second half of the structure at 1.05. The VIX might continue higher from here, especially if the SPX breaks its 50 day moving average, but the potential gain vs. potential loss from holding on to this trade is now around even, we gave it a chance to break but at this point we’re going to take the trade off and look to roll out at some point as we really like the structure.
Trade: QCOM ($61.47) Bought the July/Aug 65 call spread for .62
Dan: The stock acts badly, and many investors have been left scratching their heads given what is an increasingly attractive valuation relative to the market, its potential growth and its peers. While I am not willing to try to catch a falling knife with the stock right above key long term support, I am willing to create a structure that could have me owning Aug calls (for less by financing with the sale of July) for their fiscal Q3 earnings that could be the next identfiable catalyst.
Friday June 14th:
Name that Trade: BA ($101.75) Buy July 100 / 95 Put Spread for 1.25
Dan: Plain and simple, the data suggests since 1995 that BA rallies ~10% in the 30 trading days prior to the Paris Air Show (starts tomorrow) and then gives back about a third of those gains in the 15 trading days after the show. I want to look for a better entry possibly on some enthusiasm about expected airplane orders and then look to establish a near term bearish bet, the put spread above is likely the way I will play.
Trade Structure: ZNGA ($2.80) Sell the Jan14 2.50 Put to Buy the Jan14 3/5 Call Spread for Even Money
Dan: As I stated in my post, I bought the stock and a 3 legged trade on a $2.80 stock could get costly, but on a sell off if I can get a structure like this on for a nice credit the risk reward sets up very nicely.