Trading Diary: Nov 25th – 29th

by Enis December 1, 2013 6:03 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 25th – Nov 29th:  

Monday Nov 25th:

Action:  Sold to Close IBM ($178) Dec21st 190/180/170 Put Fly at $5.00 for a $1.40 gain.

Enis and Dan:  We put on the IBM trade with the stock above $185, looking to play for a move down to the $180 level over the next month.  The stock reached our target much quicker than expected, and actually went through the $180 support level to start the week.  Since our initial thesis on IBM was to fade strength, we did not want to be left with a position that was long delta in the stock, so we took the trade off for a quick gain around $178.

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Action: Sell to Close GLD ($119.90) Dec 125/115/105 Put Fly at 4.10 for a 2.10 gain

Dan:  With GLD at the midpoint between the put strike that I was long ($125), and the strike that I was short ($115), it was my inclination that the quick sell off that yielded the position profits that was 2x what I paid was a good spot to take the gains.  The maximum gain for the position was $8, which could be achieved if the etf was down almost $5 in the next few weeks, but if the etf rallied $3 from current levels the position would be break-even or possibly a loser higher.

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ACTION: Sold to Close EBAY ($49.20) Dec 50/55/60 Call fly at .75 for an .85 loss

Dan and CC:  We were keeping this contrarian long position on a short leash.  While we had defined out risk with an in the money call butterfly, we also wanted to use a stop in the stock that would act as a spot where we would cut our losses if key technical support was broken.

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Action:  Sold to Close MCD ($99.18) Dec21st 97.5/92.5/87.5 Put Butterfly at $0.62 for a $0.79 loss

Enis:  I had laid out the $99 level (the high from September) at initiation as my line in the sand for taking off this MCD put fly.  As a result, I took the trade off on Monday when the stock remained above that level for the entire morning.  The stock declined later in the week, and my exit was at a multi-month high for MCD stock, but we want to remain disciplined in taking off trades that hit stops or premium levels where we would rather cut our loss than stay in a low probability position.  In short, our goal is to end up with as few worthless trades on expiry as possible, and part of that means taking losses from time to time that turn out to be winners.

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Tuesday Nov 26th:

TRADE:  GME ($48.15) Buy the Dec 21st 50/46/42 Put Fly for $1.26

Enis:  GME has been on our radar for a couple months, after we did a Deep Dive on the stock in early October.  We view the stock’s strength in 2013 as based much more on a valuation catch-up than on a genuine improvement in the underlying business.  With the technicals finally turning after a weak earnings report, we wanted to play for some further weakness in a defined ranger over the next month.

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TRADE:  HPQ ($25.23) Buy Dec21st 28/25/22 Put Fly for $1.10

Enis:  The situation in HPQ stock heading into the earnings event was conducive to a range trade for 3 main reasons:  1)  HPQ stock has been in the 20-28 range for almost 6 months; 2) the company already reported better than expected guidance in early October, so some of the uncertainty for the earnings event was removed; 3)  No major catalysts remained for HPQ after the earnings event until December expiry, making a short volatility trade appealing.  After the event, HPQ stock was up 9%, more than I had expected at the initiation of the fly structure.  But since HPQ has remained in the 22 to 28 target range, our fly position is only a small loss.  We are still holding it in anticipation of a move lower in the coming weeks, but will exit the position for a loss if the stock makes a new high for the year.

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Wednesday Nov 27th:

Considering Our Options:  $YELP, $GME, $Z, $P

CC:  In case you haven’t noticed, we’ve been targeting some of the high fliers lately as it looks like their parabolic run has come to an end, at least for the time being. We’ve generally targeted them with a great structure that we like to go to in those type of situations, butterflies with wide ranges that center their targets on obvious areas of resistance or support. A couple of these names saw nice bounces off of recent lows yesterday, so it’s as good a time as any to consider our options.

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Thursday Nov 28th:

Happy Thanksgiving

Friday Nov 29th:

Deep Dive – $NTES, A Chinese Internet Pioneer

Enis:  No new trade initiated on NTES, but the deep dive goes in depth into the company’s past and future prospects.  The stock looks attractively valued, and the company has done a terrific job of managing the twists and turns of the Chinese gaming and internet market over the past decade.  With that in mind, we will be looking for a good entry point to potentially add this stock to our long-term investment portfolio in the future.

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