Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was June 24th through June 28th:
Monday June 24th:
Action: BA ($96.97) Sold to close July 100 / 95 Put Spread at 2.50 for a 1.50 profit.
BA touched its 50 day ma shortly after we put this trade on. Dan had targeted that level on initiation, and took it off on the move there on Monday as a result. The stock rallied back the balance of the week, and we considered fading it again, but our broader SPY short position was our focus given the overall increase in market correlation.
Action: CMI ($106.45) Sold the July 115/105/95 Put Butterfly at $4.15 for a $1.45 gain on my initial trade
New Position: Long the July 105/95 Put Spread at no cost
Enis: CMI is a name that we have been negative on for the entirety of 2013, mainly because of its exposure to global industrial growth (60% of revenues from outside the U.S.). The stock was down sharply on Monday after an analyst downgrade, and we used that weakness to book some profits and roll our July 115/105 put spread down to the July 105/95 put spread by trading a put butterfly. This is a trade modification that we use relatively rarely, but it’s a way for us to remain short CMI while taking a good portion of our existing premium off the table. A move down to the $100 round number level is likely to where we take off the remaining July 105/95 put spread.
Tuesday June 25th:
Action: LULU ($62.40) Sold to Close the July 65/70/75 Call Butterfly at $0.75 for a $0.35 loss
Enis: Taking this trade off turned out to be a major mistake in hindsight. In retrospect, the main way I would have changed how I handled this trade is to take it off on a break back below the 61.60 level, which was the support level that we had highlighted prior to putting on the trade. When that support broke, I viewed the trade as broken, and was in premium preservation mode. However, that doesn’t mean that I have to sell the first bounce. I could have given it room with a trailing stop to see if it had legs to recover further. In fact, that is what happened, as LULU was actually even able to rally back through 65. In any case, it’s a good lesson for the future, particularly in a very volatile name like LULU.
Wednesday June 26th:
TRADE: SPY ($159.85) Bought July 160 Puts for 2.70
This has become a much more macro, risk-on / risk-off type of market in the past couple weeks. All stocks are moving up and down together. In that environment, it makes more sense to focus capital on the broader indices, which is why we decided on a simple SPY put position around the 1600 level in the SPX. We also view implied volatility as somewhat cheap (which is why we did an outright put rather a spread) since 10 day realized volatility in the SPY has remained above 20 for the past week.
Action: Sold to Close the T ($35.40) July19th 36 Call at $0.20 for a $0.13 loss (off an original cost basis of $0.73)
Enis: This is another trade where I was in premium preservation mode after it fell so far after my initial entry around $36. I wasn’t expecting such weakness so quickly, so I changed my strategy and was in a mode of selling rallies in T after that. It helped me to minimize the final loss on the original position to just 20%, which is acceptable for a position that fell into the red and never looked back since the original entry. However, I do still like the fundamental case for long T, especially relative to most other high yielding stocks in this market. I will be watching the name closely in the second half of 2013 for favorable entries on the long side.
Thursday June 27th:
Action: SPY ($161.22) Bought July 160 Puts for 2.00, my new avg is 2.35
The market’s strength on Thursday did not change our thesis, and as it stalled below the 20 and 50 day moving average around 1620, we decided to add to the position and reduce our cost basis. A close above 1620 in the SPX would cause us to reconsider. The heavy data calendar for the upcoming week offers plenty of catalysts for a big move in either direction, so we will have our finger on the trigger depending on whether the bullish or bearish scenario plays out.
TRADE: BBRY ($14.55) Sold Jan14 12/10 Put Spread & Bought Jan14 16/19 Call Spread for .05 Credit
This was a disappointing trade for us after a very weak earnings report. Fortunately, this trade is all the way out to Jan14, so we have some time to try and recoup our loss. Given how volatile BBRy has been over the past year, we do think there will be chances to either amend the structure or spread it against other positions to help us salvage it. In the meantime, we at least have defined our downside risk, so we will keep a watchful eye for now.
Friday June 28th:
TRADE: FDX ($99.37) Bought the August 100/95/90 Put Fly For 1.00
Enis: This is another name that we have been stalking on the short side since March. It has been seriously affected by the drop-off in international trade throughout Asia, hurting its Express division and hindering the optimistic profit growth forecasts to start 2013. The most recent earnings report in mid-June once again emphasized the difficult business conditions globally. The technical outlook for the stock was also weakened by its failure to hold back above the $100 level. Its rally in the second half of this week was a good entry point in our view for a move back down to near the 200 day moving average, around $95, which would be our exit point for the put fly.
Action: Sold to Open SPY ($160.75) July 5th weekly 158 Put at .50
New Position: Long SPY July20th 160 / July 5th 158 Put Spread for 1.85
As the market sold off a bit into the close on Friday, we decided to spread the SPY position by selling a weekly 158 put. By doing this, we reduce our cost basis without hurting our position unless SPY moves below 157.50 by next Friday’s close. Even in that case, our existing July20th 160 put will be worth more than $2 more than the July5th 158 put that we sold, so it’s a situation where we are giving up the large tail move for next week, but are better off in all other scenarios, with no scenario where the total structure can be a loser.