Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was June 17th through June 21st:
Monday June 17th:
Trade: BA ($103) Bought July 100 / 95 Put Spread for 1.00
Dan: The idea for this trade was not too different than the idea for a similar bearish trade that I put on 2 weeks ago in AXP. I was looking for the slightest, just better than avg data point to put me over the edge to short a stock that has defied gravity and was trading near all time highs. The data compiled by Merrill Lynch and sited in my post suggest that on avg since 1995 BA rallies 10% in the 30 trading days prior to the Paris Air Show, and then gives back close to a third of that over the next 15 trading days. With the market feeling a tad precarious heading into what was to be a big week on the macro front I though the time was right to pul the trigger.
Name That Trade – JCP
Enis has been all over this stock on a couple instances playing for a bounce at new found support levels. He has been eyeing the stock fairly closing and decided rather than to attempt a bullish structure at the $17.50 level for third time in three months, he decided to wait and see if the stock would in fact hold in the event of a broad market sell off.
Tuesday June 18th:
XLU vs. IYR, Battle of the Yields
Enis details the correlation of XLU and IYR over the last couple years, but suggests that for those looking for yield in a rate environment that is rising for the first time in ages, healthcare and telecom names could be a better buy based on stretched valuations in the former.
Wednesday June 19th:
New Trade: TXN ($36.17) Bought the July / Oct 34 Put Spread for .90
Dan: The company just told us on their mid quarter update on June 7th that business was eh, given the increased volatility in the last few weeks I am hard pressed to think when they give Q3 guidance in late July that it will be rosy. This structure is intended to ride out the next few weeks in an effort to have the July 34 Puts expire worthless and then I will look to spread Oct by either turning into a vertical spread or possibly a diagonal calendar spread (possibly sell a lower strike than the Oct 34 Put that I own in Aug).
Thursday June 20th:
New Trade: TLT ($110.75) Bought July 110/115/120 Call Butterfly for 1.30
Dan & Enis: This is the ultimate contrarian trade, that bonds may actually start to trade higher in the next few weeks. Based on Enis’ technical work we have concluded that a close below $109 would be very bearish and would use that level as a stop. Well if we were just outright long the etf that is exactly what we would and should have done with Friday’s close of $108.38, but the in the money call butterfly essentially sets our stop on expiration of 108.70 so we are ok to hold onto it for a bit longer given the quick precipitous drop of the last couple weeks. It is our belief that as volatility continues this summer across asset classes and geographies, that U.S. Treasuries will once again see a flight to safety.
Action: Sold to Close NTAP ($38.27) Buy the Jul 35 / 40 / 45 Call Fly at 2.25 for a .77 gain.
Dan: We got in front of this one pretty decently prior to their earnings and cash distribution announcement in May. We had kept on in the hope that the stock would work back towards the guts of the fly, but at this point with a nice gain we thought it would make sense to take the money and run and look for a better re-entry as activist investors are likely to continue to make noise on any meaningful pull backs in the stock.
Friday June 21st:
New Trade: PEP ($79.88) Bought July 80 / 75 Put Spread for 1.20
Dan: U.S. multi-nationals with stretched multiples and ok growth with tons of US$ exposure could go from being viewed as defensive to ground zero in the new volatility regime that we are likely to see in the next few weeks. If the $ continues to rally into Q2 earnings season, we are likely to see fairly tepid Q3 guidance by such guidance, or at least give management’s and excuse to give cautious guidance.
New Trade: MU ($13.93) Bought July 13 Puts for .37
Dan: It is my opinion that overbought overvalued cyclical tech names like MU could be vulnerable in the near term if in fact we start to see a continuation of the equity volatility of the last few weeks. It is my view that the 50% rally in MU since early may more than compensates for any and all good news in the stock aside from an unforeseen takeout bid well above current levels (wouldn’t hold your breadth). I am looking for a double, not playing for an implosion.
Action: XLU ($36.53) Bought to close June 38 Put for 1.45 for a .45 loss. I am not selling the 36 Put as it is worthless.
Action: XLE ($78.28) Sold to close June 80/77 Put Spread at 1.65 for a .65 gain.
Dan: This one came down to the wire on Friday and frankly we were hoping for a better gain in the pairs trade, but we probably could have traded the position a bit better, earlier in the week with XLU above our short strike we might have considered closing that portion and wait to see if we got a sell off in XLE prior to expiration (which we did get) but its gains canceled out most of the XLU’s loses.
Action: XLF ($18.95) Sold July 18 put at .19 to open
New Position: XLF ($19.67) LONG July 19 / 18 put spread for .09
Dan: With the market down for its third consecutive day, and the XLF down 3.5% since I bought the July 19 puts I thought it prudent to look to spread what I own and lower my break-even.