Trading Diary: Nov 18th – 22nd

by Enis November 24, 2013 7:12 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 18th – Nov 22nd:

Monday Nov 18th:

Potential Trade Structure: STT Buy the Feb 67.50 / 72.50 Call Spread

Enis:  State Street is a reasonably valued stock, even after its strong performance in 2013.  We don’t want to chase the stock higher right now, but wanted to lay out the fundamental and technical case for a potential long delta structure if the stock pulls back to the 65-67 area in the coming weeks.  If we don’t get that entry, so be it, but we have it on our watch list if it does get down there.

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ACTION: Sell to Open 1 HD ($79.75) Dec 72.50 Put at .30
New Position: Long HD ($79.75) Dec 75 / 72.50 Put Spread for .90

Dan:  The stock’s $5 rally in a straight-line in a week rendered the Dec puts that I owned as the long leg of a calendar a bit of a lotto ticket prior to Q3 earnings.  While I could have closed for loss that equaled 1/2 of what I paid for the spread, I decided to turn the position into a vertical put spread by selling a lower strike put and take my chances with almost a month left to expiration.

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Tuesday Nov 19th:

ACTION: Sell to Close AAPL ($519) Dec 525/550/575 Call Butterfly at 4.90 for a .90 gain.

Dan:  The stock seems to be stuck in a fairly tight range showing little signs of enthusiasm when the market rallies.  As we get closer to expiration and what could be a fairly quiet holiday week next week I decided to close the fly an avoid the decay in the event the stock continues its flat-lining.

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Wednesday Nov 20th:

TRADE:  IBM ($185.75) Bought Dec20th 190/180/170 Put Fly for $3.60

Enis and Dan:  IBM has been on our radar ever since its dismal earnings report in later October.  The stock bounced all the way to where it was prior to that earnings miss this week, which offered a great entry for a short side structure given our fundamental and technical misgivings on IBM.  We decided on the in-the-money put fly given IBM’s low realized volatility over the past month.  Stan Druckenmiller singled it out as a short idea at the Robin Hood conference on Friday.  At this point, the trade is more dependent on decay than direction.

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Name That Trade: WFM ($56.25) Sell Feb 52.50 Put & Buy Feb 57.50/62.50 Call Spread (package costs .10)

Dan: This was not a trade that we put on, but merely laid out a way to play for those expecting the stock to fill in the earnings gap, thinking the stock is a bit oversold near term.

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Thursday Nov 21st:

INVESTMENT OVERLAY:  Against Long 100 shares of CBST (currently 64.75, purchased for 61.84) stock, sell 1 CBST Dec 65 Call at 3.80

Enis and CC:  CBST rallied about 5% since we added it to our Investment Portfolio on November 1st.  More interesting to us is that implied volatility is near 1 year highs ahead of Phase 3 trial results of Ceftolozane/tazobactam for Complicated intra-abdominal infections (cIAI) and complicated urinary tract infections (cUTI) 2H 2013.  Rather than speculate on whether those results will be good or bad, we took advantage of the high options premium to overwrite our long stock position, offering us some extra yield/downside protection ahead of the event.

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1. Adult Swim Trade Structure: XLF ($21.37) Sell 1 Jan 21 Put to Buy 2 Jan 22 Calls for Even $
2. Conservative Trade Structure: XLF ($21.39) Buy Dec 27th/ Jan 18th 22 Call Calendar for .10

Dan:  We wanted to lay out 2 ways were were inclined to play for a breakout of the XLF to multi-year highs, the first with a good bit of risk resulting from a naked put sale, while the second with little risk, but needs to be well timed in order to set up for profits on a breakout.  For most of our readers I prefer the calendar, but for those inclined to buy the stock right here, the put to sale to finance the purchase of 2 calls for no premium is a great leveraged play.

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ACTION – QCOM ($71) Sold to close 1 Nov22nd 67 calls at 4.05, bought to close 2 Nov22 70 calls for 1.10 (2.20 total) for a 1.85 closing price and 60c profit (paid 1.25)

Dan and CC:  With a day to weekly expiration, and QCOM acting as we had hoped following their analyst meeting (sell the news), we had a decision to take the profit or make a one day bet that the stock would continue to settle into the mid point of the fly.  We opted for the former as it was a coin flip whether the stock would be higher or lower 24 hour lowers and at the point we closed the trade we were risking the .60 profit to maybe make up to 1.00 more.  Just didn’t seem like a great risk/reward at that point.

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Friday Nov 22nd:

TRADE:  TGT ($63.72) Bought Jan14 60/65/70 Call Fly for $2.32

Enis:  Target had its third straight earnings miss this week, sending the stock back down to the low 60’s.  The stock has struggled in 2013 as earnings have actually declined almost 20% due to its significant start-up costs and competition in the Canadian market.  Management expressed confidence that the Canadian business will perform much better in 2014 as it works out the kinks.  With expectations low and valuation reasonable, I wanted to play for a rangebound situation with a slight upward bias over the next couple months.

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TRADE:  XOM ($94.80) Bought Jan14 95/90 Put Spread for $1.35

Dan and Enis:  XOM was unable to make a new all-time high this week, though got awfully close after Berkshire disclosed a new $4 billion stake in the energy giant.  We have previously laid out several reasons why we don’t expect a breakout from XOM, and this week’s move higher offered a good risk/reward entry to play for a move back to the 200 day ma around $90.

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TRADE: P ($29) Bought Dec 29 Put for $1.60

Dan:  Pandora has shown very good relative strength over the last month as many of its internet peers have failed to confirm the new highs in the broad market.  Friday’s reversal from the 52 week highs following an inline Q3 and guidance that was so so could be just the opportunity to leg into a bearish put spread.  With implied volatility down a ton following the earnings event, outright put purchases looked attractive for those inclined to press the trade on the short side.

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ACTION – Sold to close the QCOM (73.05) Nov22 73 call at $0.07, bringing total profit on QCOM structure to $0.67 (Sold first piece on Thursday for $0.60 profit)

CC:  On Thursday I thought about mentioning the fact that leaving the 73 call that at the time was no bid open left the possibilty that the stock could rally above that strike before today’s expiration and that call could be a lotto ticket. Well, the stock did just that. So we’re going to now sell that call at 7c to make sure we’re not long QCOM stock on Monday morning.

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