Trading Diary – Oct 7th to Oct 11th

by Dan October 13, 2013 6:11 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Oct 7th – Oct 11th:    

Monday Oct 7th:

TRADE:  IBM ($182.55) Bought Oct 11th /  Oct 19th Expiration 185 Call Calendar for 2.05

Dan:  IBM, sitting right above its 20 month support level, looked like a pretty decent spot to initiate a bullish trade playing for a bounce back to the $185 level heading into their Q3 report next week.  Weekly Calendars looked interesting as implied volatility was elevated in the front week, while the Oct regular expiration was likely to stay bid with the earnings event falling in the period.

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Tuesday Oct 8th: 

Action: Bought to Close IBM ($179.90) Oct 11th 185 call for .15
New Position; Long IBM ($179.90) Oct 19th 185 calls for 2.20 (original cost of the calendar was 2.05 plus the .15 to cover the weeklies)

Dan:  My entry proved to be a tad early as the stock dropped quickly below the $180 long term support.  I used the weakness to quickly cover the short leg of the spread as the premium left to take in did not justify staying short the option for the next 3 days.

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Action: ZNGA Sold to Close 2nd Half at 3.52 for a .72 gain or about 31% gain on the whole position since June 14th.

Dan:  The weakness in speculative internet stocks appeared to be accelerating with dramatic declines on big volumes for some of the biggest gainers on the year.  My position in ZNGA was small and speculative with some fairly healthy gains since June.    A couple weeks ago with the stock up more than 35% from where I bought it I closed half, with the sentiment in the space getting dicey I decided to close the second half.

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Action: Sold to Close MSFT ($32.97) Nov 32 Puts at .78 for a .05 gain.

Dan:   The original thesis for the bearish put calendar was that the core business was continuing to deteriorate at time when management and the board were likely distracted in their search for a new CEO, the third in MSFT’s entire history.  As the rumors of potential candidates for the to job began to include names like Ford’s Alan Mulally the stock caught a bid.  While it has become apparent that the appointment of Mulally would be a clear win for MSFT’s board and likely worth 5-10% in the stock, the weakness in the broad market gave me the opportunity to get out of the position for a small gain.

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ACTION – Sold the balance of VIX (20.40) October expiration trade at 1.60 (paid even, sold first half at .70, total average profit of 1.15)

Enis:  CC laid out why we exited this trade in our update on Tuesday.  We were looking to take our profits on a move to near 20 in the VIX, so we were quick on the trigger when we got that.  Our thought is that if VIX spot approaches 14 again, we might get involved on a similar structure in November, as the political brinkmanship is likely to continue after the 6 week debt ceiling extension passes.

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Wednesday Oct 9th:

Action: Sell to Close JPM ($50.65) Oct 25th 52.5 / Oct 11th 51.5 Put Diagonal at $1.21 for a $0.40 gain

Enis:  JPM got back down near the $50 support level, so we decided to exit this trade ahead of earnings.  We also considered that JPM could rally into and after the earnings number since the bar had been set low, so we wanted to have dry powder to get back in if that turned out to be the case.  That is indeed what we did on Friday’s trade.

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TRADE: FXE ($133.70) Bought Jan14 133/128 Put Spread for $1.35

Enis:  The reaction of the EUR/USD cross to Janet Yellen’s official nomination announcement was quite surprising.  Normally, that dovish news would have sent the cross higher, but when it was lower on the day, we took that as an important sign that positioning in the Euro might be overly stretched.  We are looking to play for a move back to the 128-130 area over the next few months with this structure.

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Thursday Oct 10th:

Action:  Sold to Close IBM ($183.20) Oct 185 calls at 3.10 for a .90 gain

Dan:  The stock’s weakness was met with a very quick bounce back above long term support giving me a quick profit in my Oct 185 calls so I decided to take the money and run as I have no confidence in IBM’s ability to put up a beat when they report Q3 this coming week.

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TRADE: GLD ($125.15) Bought Dec 125/115/105 Put Fly for 2.00

Dan:  Gold couldn’t rally with the VIX near the highs of the year on the budget/ceiling impasse in DC, my sense is that the weak technical set up was likely setting up for a bad breakdown on any resolution.  While the etf does not look like a great press on the short side given the continued weakness near the multi-year lows, the put butterfly that i put on offers a favorable risk reward in the event of a sell off back to the lows of the year.

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Friday Oct 11th:

TRADE: JPM ($52.78) Bought Oct25th 52.5/50.5 Put Spread for $0.55

Enis:  JPM played out as we expected, with the stock rallying after a so-so earnings number because traders were relieved to see the legal situation one step closer to resolution.  But the underlying business results were quite poor, especially on the revenues side.  With no imminent signs that that turns, we expect market participants to quickly fade Friday’s initial strength.

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TRADE:  HD ($76.54) Bought Nov / Dec 75 Put Calendar for 1.20

Dan:  By no means is this one a slam dunk, the stock has been a great performer on the year and a pillar of the bull run since last November.  The U.S. consumer weakness has avoided the home improvement trend, but with higher rates affecting the housing data, and the lingering govt shutdown adversely affecting an already strapped consumer, it is my sense that HD could be vulnerable in the coming weeks/months.  I wanted to leg into the short as outright put purchases did not look that attractive.

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TRADE:  JNJ ($89.25) Bought Oct19th / Nov16th 87.50 Put Calendar for .72

Dan:  Much like the HD trade above, I want to leg into a short position, but look for a way to help finance the purchase of puts.  JNJ was a name that we nailed when the stock was $90 a few weeks ago and the stock quickly came in close to $85.  The bounce back towards $90 gave me another opportunity to get a bearish trade on again after taking profits on the original trade in the first week of Oct.

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