Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was July 29th through Aug 2nd:
Monday July 29th:
Name That Trade – Selling Implied Earnings Moves in COH & HLF
CC: We took a look at 2 retail oriented names heading into earnings both with what appeared to be high implied moves. While both moves seemed to be price rich vs what they have been realizing over the last couple months, neither seemed that compelling to play the move in either direction so we decided to lay out a couple ways in which we would fade the high implied move if we were so inclined to do so, as we certainly weren’t going to buy the move.
Name That Trade – CMI structure for bears into earnings event
Enis: This is a name that we have been on the right side a couple times in the last few months on the short side, but after previewing the quarter and see the results from some of its industrial peers, we decided not to play the event. As I stated in the post, “Im still bearish on this stock. But I’m wary of taking a trade just ahead of earnings considering the willingness of investors to continue to look past near-term headwinds”. This was a good miss, as I had a sneaking suspicion the lackluster results caused a rally.
Tuesday July 30th:
Name That Trade – WFM: Earnings Plays
Dan: This is a stock that confounds us, we get the product, we get the growth and to some degree we agree with a premium valuation, but when we look at its PE to growth we would much rather own a SBUX that has the potential benefit to see a meaningful uptick in growth if and when international markets no longer remain a headwind. We decided to lay out some earnings plays that would benefit from the high implied move heading into the print.
Wednesday July 31st:
TRADE: FB ($36.72) Sold Sept 34/32 – 40/42 Iron Condor at .80
Dan: FB’s 40% rally since reporting its better than expected Q2 results caused a near term spike in implied volatility that we expect to subside as the stock consolidates in and around the $38 IPO price, a level that we think should see some overhang. Selling the condor creates a massive range on the break-even and offers a high probability of success, with defined risk.
Name That Trade- SPWR:
Enis: This is not a stock for the feint of heart, and despite the massive ytd gains and the sky high implied volatility, this stock was made to be traded with options due to the near term uncertainty about their business. We wanted to offer a defined risk way to play for a breakout, while also offering some strategies for those who may be looking down rather than up heading into their quarterly results.
Thursday Aug 1st:
Name That Trade 1: LNKD Long $210 Buy Aug 2nd (tomor Expiration) 220/230 1×2 Call Spread for even $
Name That Trade 2: LNKD long $210 Buy Sept 230 – 205/185 Put Spread Collar for a .50 credit
Dan: Three of the main reasons we talk over and over again for the uses of options for equity investors, yield enhancement, leverage and risk management. The first theoretical trade we laid out was taking advantage of the high levels of IV into the print by adding a call spread overlay to a long. This trade would have worked out very well with the stated goal of adding a little juice into the event for no premium. The stock closed at $235.58, and if you put on the 1×2 against a long, then you could have added another 2.5% to the return of the stock (up 10.6%) in one day following the results. SO i think it is important to discuss what you prerogatives where on Friday’s close above your short strike. You could have had your stock called away, or you could have closed the 1×2 and taking the profit and kept your long stock.
The collar might have been disappointing as you would have capped some of your gains by selling the Sept 230 call, but remember you only collar stock if you are nervous about the potential for volatility, so you are giving up some upside for a bit of downside protection.
Friday Aug 2nd:
TRADE: FB ($38) Bought Aug / Oct 38 Call Spread for 1.30
Dan: Much like I did in late May when I thought sentient towards FB was getting a little too negative, I looked out to the next potential catalyst and wanted to set up to finance the purchase of upside calls for the month that the event falls into. Big difference btwn now and then is an additional $30 billion in market cap added since late May. Now all eyes will clearly be on FB, and their ability to follow up their better than expected Q2 results, but my sense is that for the time being the stock could consolidate around $38. If there is not stock specific news, or a broad market sell off the ferocity of the recent rally should keep FB in this newly established range in the mid to high 30s, If this happens investors may start to bid shares up again as we get closer to their Q3 report in late Oct.
Name That Trade: FB ($38) Sell the Sept 35/41 strangle at 1.75 against long stock position
Dan: One last one, we thought that for longs who are willing to buy more stock down 12.50% under the worst case scenario, selling strangles against the stock seems like a nice way to take advantage of the high implied volatility, while creating a ~4.5% buffer on the shares between now and Sept expiration.