Trading Diary: Sept 9th – Sept 13th

by Enis September 15, 2013 8:25 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Sept 9th – Sept 13th:    

Monday Sept 9th:

Name That Trade:  VZ ($46.00) Sell the Oct18th 45/47 Strangle at $1.82

Enis:  Verizon is a very special situation given the size of the Vodafone deal.  As a result of the speculation and large moves in the stock since the deal was announced, implied volatility was elevated to start the week.  We liked the idea of selling an October strangle in VZ, anticipating a range developing as the fundamental positives are offset by the technical negatives surrounding the supply of stock for the deal.

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TRADE:  IBM ($185 ) Long Oct 4th /  Oct 19th Expiration 190 Call Calendar for 1.55

Dan:  The September bounce in stocks the world over has seen a slight rotation into more cyclical names with exposure to emerging markets and Europe.  IBM has been a massive underperfomrer among tech large cap stocks.  It was our snese that setting up to own upside calls into what will be a fairly ciritcal Q3 earnings report in mid Oct was the way to play for a potential bounce into and out of the results as investors may overlook backward looking results as they rotate into laggards with large exposure overseas.

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Tuesday Sept 10th: 

Action:  Sold the XOM ($87.42) Sept 85/87.50/90 Call Butterfly at $1.13 for a $0.38 gain

Enis:  The initial idea behind this trade idea was that XOM was very oversold, which likely implied a bounce, but that the negative momentum was so strong that any bounce was unlikely to last.  The scenario played out as planned, but we decided to take off the butterfly call spread after XOM’s weak start to the week given that oil had rallied so precipitously and XOM was still around our 87.50 midpoint for the fly.  Both in the case of our CF call fly and the XOM call fly, waiting for more decay might have been the better outcome, but we were uncomfortable waiting through the last week before expiry given the FOMC.

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Wednesday Sept 11th:

Trade:  AAPL ($467.50) Bought Oct/ Nov 500 Call Spread for 5.30

Dan:  The iPhone event was a dud as we had expected, and the stock acted almost exactly as we expected retreating back to the 200 day moving average, the level where Carl Icahn famously Tweeted about his large long position in the stock in mid August.  $500 will now be very important technical and psychological resistance, but the closer we get to the company’s fiscal Q4 earnings expected the last week of October, the more focus we think will be place the potential for the company to lay out a path to earnings acceleration.

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Alternative Trade ideas for AAPL:

Enis:  We had a lengthy internal discussion prior to executing the call calendar in AAPL.  We thought it would be worthwhile to offer the other ideas we were considering in AAPL for those interested.

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TRADE: GE ($24) Bought Oct 24 calls for .47

Dan:  Much like IBM, GE has heavy revenue exposure to emerging markets and Europe, if the market is going to make new highs, we think that a stock like GE will follow suit, the Oct options were cheap considering that they also catch Q3 earnings.  We will look to spread on a move to $25.

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Thursday Sept 12th:

TRADE: NFLX ($302.75) Bought Oct18th 280/255/230 Put Fly for $3.00

Enis:  NFLX is the second best performing stock in the Nasdaq 100 in 2013.  The best performer is TSLA.  We are obviously targeting the high fliers in the past couple weeks, as we’re now long a downside put fly on both TSLA and NFLX.  We see a number of technical warning signs for NFLX, and the failure after a new high earlier this week led us to pull the trigger on Thursday.  Part of the attractiveness of this type of structure is that it will not decay much for several weeks.  The drawback is that we will not make as large of a profit as other negative delta trades if the stock pulls back into our target range in the next couple weeks.

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Friday Sept 13th:

Action:  MSFT (32.79) Sold the Sept 36/34/32 put butterfly at $0.72 for a $0.02 gain

Enis:  MSFT has been gapping back and forth between 31 and 36 on several occasions over the past few months.  We liked targeting the 32.70 to 35.30 range when we initiated this put fly, but the stock’s deeper weakness surprised us.  Our decision to get out of the trade for near flat was based on the stock’s difficulty to break above its 50 day moving average.  Overall though, we are also more bearish on the stock as a team, so got out of the trade on the bounce last week.

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Action – Sold to close the FB ($44.29 ) Oct 38 / Sept13th 40 Call Diagonal at 2.27 for a $.75 gain.

Dan:  Every so often the thesis for a trade doesn’t play out, but the trade still makes money. This rolling calendar spread was just the case.  It worked so well out of the gate we thought we could keep doing it for weeks on end.  Well the stock never let up, and the strike that we were long had become so in the money that the option lost most of its optionality thus making the trade less attractive.  We decided to take the money and run and look for other trades in the name as the stock makes new 52 week highs everyday.

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Trade: MSFT ($33) Bought Sept / Nov $32 Put Calendar for .73

Dan: The stock has had a fairly volatile 2 months, but next weeks financial analyst meeting likely to be a non-event, despite the options market expecting some heavy movement for a stock like MSFT.  We wanted to take advantage of the relatively high level of implied vol in the Sept weekly options and help finance Nov puts that will catch earnings.  While the stock is likely to be dead money until they announce a new CEO, we expect next week’s event to be neutral at best.

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