Trading Diary: July 8th – July 12th

by Dan July 14, 2013 7:59 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was July 8th through July 12th:    

Monday July 8th:

Name That Trade:  Not All Banks “Trade” Well – $GS, $MS

Dan:  Heading into Q2 earnings seasons there seemed to be a fairly noticeable under-performance from the traditional “investment banks” like GS & MS vs that of the recent test of the previous 52 week highs from the “moneycenters” like JPM & WFC.  We want to keep a close eye on this as the recent widening then flattening of the yield curve could create trading opportunities within the sector.

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Tuesday July 9th:

Considering Our Options – $FDX

Enis:  FDX shares were on a wild ride last week.  The stock caught a sharp bid on Tuesday morning on speculation that Ackman’s rumored single stock fund might target FDX.  We wrote our COO post to explain our thoughts on our existing FDX Aug 100/95/90 put fly position.  The key point is that the trade does not have much volatility exposure as of now, and will be affected more in the short-term by moves higher or lower in the stock (by its short delta, in options parlance).  In any case, we ended up just leaving the position with no adjustments, though we considered closing out 1 of the Aug 95 puts, but the options premium never dropped low enough to make it worthwhile in our view.  Finally, it’s worth noting that Ackman’s recent activism has not been as successful as in the past, with HLF and PG the 2 most recent, highest profile examples.

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Wednesday July 10th:

Action: Sold to Close MU ($12.97) July 13 Put at $.45 for a $.08 gain

Dan:  As I suggested in the post, this was kind of like found money so to speak as the stock came in 10% in 2 trading days on no news despite a broad market that was screaming higher.  With the options in the money, holding them without an identifiable event, with time running out was becoming a minute to minute call on the stocks next tick.  This is a name we want to keep a close eye on as we would look to roll out this near term bearish on a move back towards $14.

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Name That Trade $HPQ – Whitman Sampler

Enis:  Stock has been on a tear this year, more than doubling since late 2012.  Quite a move for a large cap name like HPQ.  When looking at the fundamental case, the increased valuation is a reason for some skepticism, especially since most of the fundamental benefits of cost-cutting will likely result in a long-term hit to earnings power.  Moreover, secular trends are still dismal, as evidenced by the continued decline in the printing and PC businesses.  The technical situation indicates a more tepid breakout on the upgrade than more recent moves higher.  We considered selling the Aug 25/27 call spread, but want to see if the breakout holds over the next week.

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Thursday July 11th:

Trade: WFC ($42.00) Bought the July19th / Aug16th 41 Put Calendar for $0.49

Enis:  WFC was unable to hold its clean breakout earlier in the week, selling off into its earnings event.  That gave us more confidence that WFC’s earnings was unlikely to result in a major move in either direction, as support was strong around the 50 day moving average near $40, while the $43 level was likely to act as resistance going forward.  The earnings result was slightly better than we expected as WFC was less affected by higher rates in the 2nd quarter, but the stock’s reaction was relatively minor nonetheless, and the put calendar position settled near even by Friday’s close.  Our goal is to spread the August 41 puts in some fashion when the July expires this coming Friday.  

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Friday July 12th:

TRADE: CAT ($87.25) Bought July / Aug 85 Put Spread for 1.25

Dan: While CAT has shown some decent relative strength since reporting its Q1 earnings back in April, but the recent bounce in emerging markets off of multi-month lows is not likely the bottom.  As we head into CAT’s Q2 earnings in 2 weeks I like the idea of legging into puts playing for one last test of long-term support at $80.  While much of the “bear case” is well known in the stock, my sense would be that if emerging market stocks take out last months lows at some point in the next few weeks, CAT will likely trade in sympathy.  Recent commentary from U.S. multi-nationals like FDX and  UPS speak the potential for further economic weakness in China, Brazil and even here in the U.S.

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