Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was July 22nd through July 26th:
Monday July 22nd:
Action – TXN ($37.44) Sold the August 36 puts at .52
New position – Long the August 38/36 put spread for .63
Dan: The PC and Smartphone supply chain just isn’t the place to be invested in as PC sales decline and margins compress on high end smartphones due to saturation. Given TXN’s reliance on smartphone makers RIMM and NOK in the last cycle, the company has gone to great efforts to to diversify its revenue base as a result of the failure of the prior leaders. TXN’s legacy wireless chip business still consists of nearly 25% of their sales. Since the company’s mid-qtr update in early June, the stock had outperformed the SOX, and I rolled up my stikes in an effort to give myself a better shot to break-even on reduced forward guidance.
Tuesday July 23rd:
Action – QCOM ($62.42 ) Sold to close Aug 65 calls at .64 for a .02 gain
Dan: The long call position was the leftover part of the July/Aug call calendar that I put on in June. With the the Aug calls unchanged from the original cost of the calendar, I had a choice to spread them by selling a higher strike call, spread them by selling a shorter-dated weekly call, close all together or let them ride. IN front of AAPL’s earnings, a day before QCOM’s earnings I thought it made sense to close the position and take another look after AAPL’s results.
Wednesday July 24th:
TRADE: BA ($108.00) Bought Aug9th 109/105/101 Put Fly for $1.03
Enis: Boeing reported strong earnings on Wednesday before the open, but the stock quickly faded after the open despite the strong report. Our thought was that there were many other traders who were also expecting a strong earnings report, so many would likely wait to sell until after the release. Indeed, BA made its all-time high immediately after the report, and proceeded to sell off for the balance of the week. Despite the underlying business strength, valuation has become stretched and the problems with the new Dreamliner still linger. We view $108 as important resistance going forward (that was the previous 2007 high) and $104 is short-term support over the last month. For now, we plan to hold the trade and let the position decay in our favor. It should be a double if the stock stays within $1 of the 105 strike over the next week. If the stock breaks 104 on the downside or 108 on the upside in the coming week, we might take it off.
TRADE: NUE ($45.69) Bought Sept 46/42 Put Spread for $1.25
Enis: One area of success in our trading this year has been in anticipating weakness in names connected to international industrial growth, particularly in the metals and mining sector. While Nucor’s business is concentrated in the U.S., the price of steel is more closely tied to China’s economic fortunes. Nucor reported weak earnings on July 19th, but the company’s executives argued that they expected a stronger second half of 2013 as global growth stabilized. Current signs, especially out of China, don’t indicate that such a turnaround is likely. I bought the Sept 46/42 put spread in NUE with the idea that the recent high around $46.66 would be tough to breach with such a backdrop, but the stock actually closed at 1 month highs at the end of the week, at 46.80. With that in mind, unless the stock moves back down quickly, I will likely take the trade off early next week, with the though that I can re-enter again if price action confirms my fundamental thesis.
Thursday July 25th:
Name That Trade: QCOM ($63.50) Buy Sept 60/65/70 Call Butterfly for 2.00
Dan: With AAPL and QCOM’s results out of the way, I was looking for another opportunity to reestablish a bullish position in QCOM. The trade structure detailed above was intended to create a range btwn 62 and 68 where I could make money without taking too much risk in a situation where implied vol continued to contract.
Friday July 26th:
TRADE: AAPL ($439.50) Sold the Aug16th 430/420 Put Spread at $2.90
TRADE: QQQ ($75.09) Bought the Aug16th 74/71 Put Spread for $0.37
NOTE – I DID THE QQQ PIECE WITH 6 TIMES THE SIZE AS THE AAPL PIECE. IT IS NOT 1 for 1.
Enis: My main view on AAPL ever since its late-April earnings release has been that the stock is rangebound, buoyed by its large capital return strategy, but hurt by overall smartphone saturation and a stale product lineup. After its July earnings release early this week, my view remains the same, though I have a slightly more bullish bent as we approach the new product cycle for AAPL in the fall. With that in mind, I think AAPL’s shares will be supported going forward, though I still think upside is limited. Technically, the 50 day moving average at 429 should be important support in the short-term. Meanwhile, the other large-cap tech stocks came out with mostly weak reports. I expect AAPL to outperform the QQQ ETF over the next couple months, particularly if we see a continuation of the rotation out of year-to-date winners into year-to-date losers that has been seen in July. The trade structure is designed to collect a small credit if both put spreads end up out-of-the-money, but the best case scenario is if AAPL holds up while QQQ heads lower.
Name That Trade – SCTY (40.50) Bought the Jan’14 45/60/75 call fly for 1.90
Enis: CC’s writeup on Solar City on Friday afternoon is a very good synopsis of our thoughts about the solar industry over the past 6 months. We view solar as a potential revolutionary sector over the next decade, and have been doing extensive research to find the names that are best correlated to that theme. SCTY is one that we have identified that is particularly scaleable, with influential executives and investors (including Elon Musk) in place to drive that growth. In the near-term, we have little sense for how a speculative stock with such little history might move. Over a 6 month time-frame and longer, we are bullish on the stock and the sector. CC’s proposed structure targets that longer-term view with a favorable risk/reward structure today.