Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Aug 19th through Aug 23rd:
Tuesday Aug 20th:
TRADE: BBY ($33.90) Buy the Sept 34 put for 1.55
Enis: We have been watching BBY all year, amazed by the magnitude of the stock’s move higher in just 9 months. New management has done a stellar job, but we see little to justify the optimism reflected in the now full multiple. We liked the entry after earnings given longer-term resistance around $35, but the entry proved too early, as we were quickly stopped out of the trade earlier in the week. After 2 straight losing trades in this name, we’re likely going to let it be, and move on to greener pastures.
Wednesday Aug 21st:
ACTION: VIX ($16.42) August 15/20/25 Call Butterfly cash settles at $1.42 for a $0.07 gain
Enis: We were saved by the bell in this trade. The nuances of VIX expiration gave us a last-second winner when this trade was a loser for the majority of our holding period. Since VIX expiration occurs on Wednesday morning on the open, the VIX settlement price ended up being much higher than we expected given recent VIX spot prices. We’ll take it, though it’s a rare occurrence overall.
ACTION: CF ($191.04) Sold to close the Sept 180/195/210 Call Butterfly at $5.68 for a $1.60 gain
Enis: The main reason for taking off this trade was twofold – 1) Since there is not much delta left in the position, time decay is the main way this structure is going to make money over the next month. But waiting a few more weeks in this position did not seem appealing, especially in consideration of point 2) we liked the XOM fly structure that we had laid out as a Name that Trade, and preferred to move our capital towards that trade. While there is no rule to the number of outstanding positions, we do constantly make that relative value assessment as we take off and initiate new trades. If CF sells off back to near $185, we might initiate a new position similar to this call fly.
Trade : XOM ($86.95) Bought the Sept 85/87.5/90 Call Butterfly for $0.75
Enis: XOM became deeply oversold in the middle of the week, and it approached important long-term support around $85. However, when the RSI momentum becomes so oversold, it’s rare that the stock forms a V-bottom there. Rather, it’s more common that the stock takes time to build a base. With that in mind, we liked the risk/reward of a September butterfly targeting the 85.75 to 89.25 range in XOM over the next month, as oversold conditions get worked off but long-term support around 85 still holds.
Thursday Aug 22nd:
TRADE: Sold the VIX (14.70) Sept 14 Put to Buy the Sept 17/20 Call Spread for Even Money
Enis: The main appeal of this structure for us is due to the fact that the highly anticipated September FOMC meeting falls on the day of Sept VIX expiry. As a result, the morning VIX expiration is unlikely to result in a very low VIX settlement (we’re most exposed to a print below 14 with our structure), as options traders are likely to keep bidding for SPX options ahead of the FOMC event. In that sense, we view this is a nice asymmetric risk/reward trade where we don’t have to lay out any premium for what we think is much more likely to result in a winner than a loser.
ACTION: BBY ($35.13) Sold to close the Sept 34 Put at 0.97 for a $0.58 loss
Enis: We did not give the BBY trade much room precisely because it was the sort of trade where if it did not work quickly (given our entry near $35 resistance), then we wanted to get out without risking more of our premium. The stock broke $35 convincingly on Thursday, so we took our loss on the trade and moved on.
Friday Aug 23rd:
Action: FB ($40.40) bought to close Aug23rd 38 calls for 2.50 / sold to open the Aug30th 40 calls at 1.05
New Position: Long the Aug30th 40 / Oct 38 call calendar for 2.35 (currently worth 2.70)
Enis: We debated the best way to adjust our call calendar in FB after it broke above the $40 level on high volume on Friday morning. We decided to sell another at-the-money weekly option, with our main risk on this new structure that FB either goes much higher or much lower in the next week. Our goal remains to collect as much premium as possible against our Oct calls and retain that optionality ahead of FB’s October earnings report.