Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Sept 23rd – Sept 27th:
Monday Sept 23rd:
TRADE: Sold the VIX (14.30) Oct 14 Put to Buy the Oct 16/19 Call Spread for Even Money
Enis: We continue to prefer VIX structures that give us cheap exposure to long VIX without risking any loss unless VIX falls below 14 on expiry. In this case, we liked the entry because we viewed the potential for political problems on brinkmanship on the budget and the debt ceiling as underpriced by the market. We’re likely to look to take at least part of this trade off if the structure is worth more than $1.00 in the next week.
Tuesday Sept 24th:
TRADE: JPM ($50.88) Bought Oct18th 50 call for $1.51
Enis: This JPM trade was very much designed to play for a technical bounce near very important long-term support. We don’t think the resolution of its legal problems is nearly the panacea that the market might at first perceive, but the $50 area was likely to attract buyers regardless of the fundamental backdrop. Moreover, implied volatility was quite cheap given that Oct options captured earnings.
Wednesday Sept 25th:
Action: Sold to Close IBM ($189.25 ) Oct 4th/ Oct 19th 190 Call Spread at 2.05 for a .50 gain
Dan: For all intents and purposes this trade did exactly what I would have liked it to do when I put the trade on a couple weeks back, go to $190 and straddle the strike. I decided to close the position for a small gain as I am no longer interested in looking to set up a call spread for Q3 earnings which was partially the idea for the calendar in the first place. Late in the week ACN reported very disappointing results and IBM was down in sympathy, this is a stock that could have downside below $180 in the event of another miss and guide down in my opinion.
Action: JNJ ($87.63) Sold to Close Oct 90 puts at 2.75 for a 1.40 gain
Dan: Regular readers of the site know that when we get a very quick double in an options trade, as was the case in 3 trading days in JNJ, we often will take the profit and look to re-initiate the view on a re-tracement of a portion of the recent move.
Action: ZNGA Sold to Close Half at 3.83 for a 1.03 gain or about 37% gain since June 14th.
Dan: This small speculative position finally caught some of the Web 2.0 fever that some of its brethren have been rallying with in the last few months. The stock’s almost 40% gains in a little less than 2 months was enough to cause me to take some profits in the stock.
ACTION: JPM ($51.50) Sold to close the Oct18th 50 Calls at $1.94 for a $0.43 gain
Enis: Could probably have been a bit more patient with this trade, but such a quick one day gain on a technical bounce back up into a congestion area made me pull the trigger on this trade. This is a situation where we were only playing for a 1-2 day bounce, so we decided to take the quick profit.
Thursday Sept 26th:
Name That Trade:
Trade: NKE ($69.84) Bought Sept 27th / Oct 19th 67.50 Put Spread for .55
Dan: As I said in the post of this hypothetical trade “The implied move is about 5% and I could see the stock pop the current flag it is in and continue to go up on better than expected results, I could see it consolidate with and inline print and guidance and I could see it down $2 to $3 on slight miss and weak guidance.” Well the stock had a beat and raise and it popped that flag almost exactly inline with the implied move. While lots of speculators who trade with options are looking for event set ups like earnings, the truth is long premium directional bets are a very hard way to make money without some serious fundamental research and or info that you are not supposed to have. We will generally try to avoid these sorts of trades, but recognize that some readers like to “play along at home” and we will lay out some for educational purposes from time to time.
Friday Sept 27th:
Name That Trade:
TRADE: IWM ($106.70) Bought Oct 105/100/95 Put Butterfly for .60
Dan: I saw this trade in the market and was able to confirm with the actual buyer that it was an outright short term directional bet with the intention for the IWM to move to the “guts” or the middle strike of the fly. I like this trade because the risk reward sets up very nicely, there is a wide range in a short period of time where this trade could yield multiples of the capital at risk, with plenty of events to help catalyze the move. Risking a little to possibly make a lot, with defined risk.
Name That Trade:
Hypothetical Trade: DPZ ($67.50) Buy Oct 65/60 Put Spread for .90
Dan: I was asked by the Options Action team to take look at this stock as our technician has a bearish on the casual dining sector and the Dominoes in particular. While the $5 wide strikes make it very hard to find spreads that offer an attractive risk reward, the stock has been known to move around earnings, and for those looking to be contrarian and try to pick a top, it makes sense to do so while also defining your risk. The problem with this spread is that you need a 5% move lower just to break-even and then another 5% to make the the full width of the spread. This could clearly happen with earnings and an expected volatile calendar of events over the next few weeks, but your guess is as good as mine. A name like this that has defied gravity for as long as it has could clearly continue to do so.