Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Oct 21st – Oct 25th:
Monday Oct 21st:
Action: Sold to Close AAPL ($522.70) Oct25th/Nov1st $515 Call Calendar at 8.50 for a 1.05 gain
Dan: This was a tough call as I really expected the stock to consolidate recent gains into and out of Tuesday’s the iPad event. With the stock gapping monday above my strikes I decided to take the small profit and not run the risk of a full blow breakout that could render this position a quick loser.
TRADE: CTXS ($57) Bought Nov / Jan 62.5 Call Calendar for 1.00
Dan: The company had pre-announced a worse than expected 3rd quarter a couple weeks ago and my thought was that the actual report this past week with guidance could serve as a catalyst for a dead cat bounce. Selling Nov out of the money calls to finance the purchase of longer dated calls could set up to be a decent way to play this beaten up tech stock off of its 52 week lows.
Tuesday Oct 22nd:
TRADE: CMG ($514.50) Bought the Nov 515 Puts for 12.00
Dan: With other high-fliers like NFLX reversing off of all time highs my thought was that some of these high valuation high beta names like CMG could follow suit. I wanted to try to leg into a put spread, meaning I would buy some at the money short dated puts playing for a quick reversal and then look to spread some lower strike puts on the down move and have a cheap put spread on.
TRADE: FDX ($129.90) Bought Nov 130/125/120 Put Fly for 1.00
Enis: FDX’s huge breakout after making a new all-time high above the $120 level resembled quite similarly the breakout in BA earlier this fall after BA broke out above the $110 level. That long-term breakout likely means $120 will act as strong support for FDX going forward. However, the stock is so overbought in the short-term (up around 20% in just 2 weeks on no news) that a pullback here is more likely than normal. Moreover, Asian weakness, which has plagued FDX this year, has hurt other companies (like CAT) in the current reporting period, another potential negative catalyst. We especially liked the risk/reward of the put fly targeting the 121 to 129 range for November expiry.
Wednesday Oct 23th:
No trades or updates.
Thursday Oct 24th:
Action: Sold to Close JPM ($52.33) Oct25th 52.5/50.5 Put Spread at $0.35 for a $0.20 loss
Enis: This JPM trade did not work out due to the broader market rally, despite the idiosyncratic underperformance by JPM over the last couple weeks. In retrospect, a trade where we had sold an upside call spread as opposed to buying a short-dated downside put spread would have resulted in a full gain as opposed to a small loss. Regardless, we still view JPM as likely rangebound between 50 and 55, with a greater risk of breaking 50 on the downside.
ACTION: CSCO ($22.38) Bought Nov 23 Calls for .45
Dan: The stock very nearly tested a huge support level at $22. My thought was that the stock has been down in sympathy due to less than stellar earnings and guidance from many of its peers/competition and customers/suppliers. When the company gets to its reporting date, a lot of bad news may end up being in the stock. I will look to spread these calls on a move back to 23, most likely selling the Nov 24 calls against.
Friday Oct 25th:
Action: Sold to Close CMG ($524) Nov 515 Put at 8.00 for a 4.00 loss.
Dan: This trade did not go as planned and the 2 prior days price action where the stock opened lower and then closed on the high of the day to make new all time highs showed me that this is not a stock that makes a lot of sense to try to pick a top in. I decided to cut my losses as this was not a high conviction fundamental trade, it was more of a sentiment trade that clearly did not play out.
Name That Trade TSLA
Dan: We get a lot of questions about TSLA, and interestingly they are less and less about how to get long the stock. We laid out 2 scenarios for those who are interested in owning calls or puts into the company’s Nov 5th earnings events. It is our belief that directional plays without some sort of way to finance the trade btwn now and the event is a sure fire way to be at a disadvantage on the eve of earnings due to the high levels of implied volatility. Calendars make a lot of sense in scenarios like this (scenarios like this = mania).