Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Nov 4th – Nov 8th:
Monday Nov 4th:
Name That TRADE: AIG ($49) Buy Dec 49/52.50 Call Spread for 1.10
Dan: The stock’s failed breakout and its earnings gap lower got us looking at the insurer in an attempt to see just how much technical damage was down following the disappointing print. Our sense was that as long as the stock could hold the uptrend that has been in place since last fall, there was a good chance for a gap fill. We did not pull the trigger as we wanted to see how the stock acted after more than just 2 down days.
Action: Sold to Close FB ($48.80) Nov15th 45/50/55 Call Fly at $2.20 for a $1.10 gain
Enis: One of our most successful trades this earnings season has been selling trumped up implied moves. It was our belief that there was a lot of good news in FB’s shares heading into their Q3 print and that it would take another big beat and raise for the shares to make a new high. That being said we placed a low probability on the chance for a meaningful disappointment. With the earnings event come and gone, and the stock settling not far from where we put the “fade” trade on, we decided to not risk the gains with 9 trading days to expiration.
Tuesday Nov 5th:
TRADE: Z ($81.71) Bought Dec 80/65/50 Put Butterfly for 3.60
Dan: This is a name that we have not liked for 20% since the highs in Sept. The stock’s inability to have a material bounce for weeks off of the $80 technical support level suggested that this momentum stock might being seeing some distribution by holders. Heading into their Q3 print I wanted to make a bearish bet, but define a range, and define my risk that the stock’s momentum had been broken. I was of the mindset that many of these stocks had reached an “as good as it gets” situation.
Wednesday Nov 6th:
TRADE: Bought GLW for $16.47
ALTERNATE OPTIONS TRADE: Buy the GLW ($16.47) Feb 15/18 risk reversal (sell 15p, buy 18c), collect 0.02 credit
Dan & Enis: This was a stock that we looked at last month and concluded that the fundamentals might be a tad more encouraging than the stock price had been displaying. Since the stock’s gap on the news of their deal with Samsung 2 weeks back, and their subsequent commitment to use proceeds to buy back stock we had been waiting for a pullback to get long. Despite this being an investment idea, we laid out a way to play in the options market that offers a fairly wide band in which you could get long on Feb expiration with no premium outlay at the onset.
Action: Sell to Close Half of CSCO ($23.25) Nov 16th 23 Calls at .82 for a .34 gain
Dan: The stock started to run into a product announcement and I took the opportunity to sell half of my position that I had doubled down on when the stock was a $1 lower than current levels.
Thursday Nov 7th:
Action: Buy to Close AAPL ($516.30) Nov 16th 500/490 Put spread for .90 for a 1.60 gain
Dan: While our Iron Condor sale into AAPL’s fiscal Q4 print worked out very well for the event, the stock creeping down towards the short put spread started to make me a tad nervous as it appeared the market was getting a little frightful Thursday afternoon. While I was not worried over the next week that the stock would get anywhere near the strikes of my out of the money short call spread, I decided to make a risk management decision and close the put spread, and thus dramatically increase my chances of success.
TRADE: PCLN ($1037) Sold Nov 15th 990/970– 1090/1110 Iron Condor at $11.25
Enis: Going back to the well on this trade, the stock’s implied move seemed rich, yet the stocks reaction to positive results out of peer EXPE led us to believe that the chances of a gap to new highs was low, while the fundamental set up suggested to us that a miss and or meaningful guide down was not a high probability. Enter the “Fade” trade.
Action: Sell to Open CSCO ($23.38) Nov 16th 24 call at .40
New Position: Long CSCO Nov 16th 23/24 call spread for .08
Dan: After taking profits on half of this position earlier in the week, I decided that staying long a portion of the position into next week’s earnings event made sense. The decision to spread the calls by selling a higher strike in the same expirationand further reducing the break-even seemed like a sensible thing to do given the potential uncertainty of the stock’s reaction to earnings and guidance. I now have a $1 wide in the money call spread on for .08, that is my max risk.
Friday Nov 8th:
Name That Trade: FB Collar
FB ($47.75) against 100 shares of long Stock, Buy Dec 43/52.50 Collar for Even Money
Dan: FB’s technical set up on a week that saw a new public entrant to the social media space seemed downright bad, closing on the lows for the week and what could be an important support level and below its 50 day moving avg. The chart appears to be making a bit of a head and shoulders top formation, looking eerily similar to that of TSLA prior to the stock’s breakdown last week. Collars look attractive for those long holders who want to stay in the position but are more worried about dramatic downside in the near term vs a massive move higher. With the stock up 80% ytd, structures that cost nothing other than potential upside make sense to lock in some gains.
Action: Bought to Close PCLN ($1067) Nov15th 990/970, 1090/1110 Iron Condor for $5 for a $6 gain.
Enis: With a week to expiration, and the trade a nice one day success we did not think it was an attractive risk reward to hold onto the position in the stock that has the potential to move 2-3% a day. We decided to book the quick profit and take the money and run.