Trading Diary Nov 11th – 15th

by Enis November 17, 2013 5:13 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Nov 11th – Nov 15th:

Monday Nov 11th:

Trade: MCD ($97.01) Buy Dec 20th 97.5/92.5/87.5 Put Fly for $1.41

Enis:  McDonald’s has been a major laggard in this monstrous bull move in the broader market over the past 2 years.  The stock has stalled as earnings and revenues have stalled.  The past 3 earnings reports have all been lackluster, with increasing competition and tighter margins.  The strength in the market pushed MCD back up above $97, which we viewed as a favorable entry for a short delta position, looking for a move back to the recent support around $92.50.

Read here

Tuesday Nov 12th:

New Trade: Buy YELP ($65.55) Jan 60/50/40 Put Butterfly for 1.75

Dan and Enis:  After the stock’s fairly dramatic short term decline, and subsequent bounce back to technical resistance at its 50 day moving avg,  we wanted to look for a trade structure that would define a wide range to the downside while giving us some time to let the bearish view possibly play out.

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Portfolio Protection, Proposed Structure: Sell the VIX (12.90) Dec 14 Put to Buy the Dec 15/18 Call Spread for Even Money

Enis and CC:  We have had some success in the past 3 months employing VIX risk reversals to play for moves higher in the VIX from the low teens to the high teens.  With the VIX below 13, and the Dec FOMC event coinciding with Dec VIX expiry, we wanted to lay out a similar structure to what we’ve used in the past to play for a move higher in the VIX.  We didn’t pull the trigger on this ourselves, but offered the idea for those who are interested in downside protection without having to pay outright premium for it.

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Wednesday Nov 13th:

Action: Sell to Close CSCO ($23.82) Nov 23/24 Call Spread at .58 for a .50 gain

Dan:  When we took a bullish short term view on CSCO with the stock approaching near term technical support, the idea was really never to be long into their earnings, but take advantage of what we felt was fairly poor sentiment.  The trade was that the stock could possibly rally into earnings, which it did, and given our good entry on the long side, we decided that the risk reward heading into the print was not great, particularly for our in the money trade.

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ACTION: Sold to close CTXS ($56.50) Nov/Jan 62.5 call calendar at 1.00, what I paid for it

Dan:  The entry on this calendar was perfect back near the 52 week lows last month, and the trade could not have been working out better with the grind up to the strikes and the short strike decaying very quickly.  The trade went haywire with on Wednesday when news hit the tape that AMZN will be offering some competing products to that of CTXS and will most likely dramatically ubdercutting on price.  We decided rather than to let the trade go from a nice winner to a loser, we hit the bid at the price we had paid for the trade and moved on.

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Thursday Nov 14th:

TRADE: QCOM ($71.25) Bought Nov 22nd (Next Friday) 67/70/73  Call Butterfly for 1.25

Dan:  The stock found buyers in the mid $60s after the company issued slightly disappointing Q4 guidance, causing the stock to make new 52 week highs last week and break above fairly staunch technical resistance at $70.  Traders are looking forward to the company’s schedule analyst meeting on Nov 21st where they may expect to get some more info on cash distribution as the company has 24% of their market cap in cash and no debt.  It was our sense that the stock likely got a tad ahead of itself and could see a sort of sell the news reaction with the stock settling back towards the $70 breakout level.

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Friday Nov 15th:

TRADE: ABBV ($48.25) Buy the May14 50/55 Call Spread for 1.35

Enis:  Large cap healthcare has admirably kept pace with the U.S. indices in 2013, despite their traditional role as more defensive exposure.  A big reason for that strong performance has been the relative undervaluation of the sector compared to both the broader market, and especially compared to other traditionally defensive sectors like consumer staples and utilities.  ABBV is one pharma stock that we still view as good relative value, and put on a longer-term bullish structure with the view that we would be willing to add to this structure on a pullback to the 45-46 area.

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Hypothetical Trade: TJX ($63.40) Buy Dec 62.5 put for 1.20

Dan:  Trying to pick tops in this raging bull market has been a bit of a fools errand.  TJX’s assent though has defied gravity of late, and the stock’s 10% rally since their Q3 pre-announcement a few weeks ago could make Tuesday’s report a bit of a sell the news set up.  Puts are cheap and if you are inclined to make a short term bearish bet, the best way is buy near the money puts outright and leg into a spread.

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Hypothetical Overlay: Against 100 shares of long TWTR stock at $44 Sell 1 Dec 49 call at $1.00

Dan:  The high implied volatility right out of the gate for TWTR options make overwrites for long holders fairly attractive as call-away levels are high offering 2% yield, 10% out of the money for one month.

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Note:  There is a natural survivorship bias in our expiring trades.  We take all of our winners off prior to expiry since we don’t take delivery of stock, which leaves only losing trades to report on expiry.  You can see all of our trades reported on the Recent Trades page.

2:10 PM EDT – AUGUST 14, 2013 BY ENIS

TRADE: WFM ($54.63) Bought the Nov 55 / 47.5 Put Spread for $2.35

2:52 PM EDT – OCTOBER 11, 2013 BY DAN

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

11:44 AM EDT – OCTOBER 22, 2013 BY ENIS and DAN

TRADE: FDX ($129.90) Bought Nov 130/125/120 Put Fly for 1.00