Trading Diary: Dec 2nd – Dec 6th

by Enis December 8, 2013 4:38 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Dec 2nd – Dec 6th:    

Monday Dec 2nd:

Name That Trade:  AMZN ($394) Buy the Feb 400/350/300 Put Fly for $11.50

Enis:  Jeff Bezos was on 60 Minutes on December 1st touting the potential future Amazon drone delivery method.  While still a long ways off, the media buzz on Monday morning was substantial, and AMZN stock got all the way to $399 on the enthusiasm.  However, the stock reversed lower, and my proposed trade was based on the thought that AMZN was very extended technically along with the fact that the stock was unable to rally on Monday despite a good news catalyst.  We didn’t put the trade on ourselves.

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Tuesday Dec 3rd:

TRADE:  WMT ($80.93) Bought Jan14 82.5/77.5/72.5 Put Fly for 1.75

Dan:  The relative out-performance, valuation and sentiment in favor of WMT to TGT stuck out to us as fairly odd given what appears to be a fairly similar set of disappointing results of late and expected results going forward.  While we already have an in the money call butterfly on in TGT, we liked the idea of pairing that long biased trade with a defined risk short biased trade in WMT.

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Wednesday Dec 4th:

ACTION – Sold to close the Z ($71.65) Dec 80/65/50 put butterfly at 7.20 for a 3.60 profit

Dan: Since initiating this bearish position about a month earlier the stock made a series of lower highs and lower lows, selling off 12.5% and never attempting to make new highs with the broad market indices.  While the stock still appears to be weak, we thought it made sense to take a gain that amounted to a double and look for better opportunities to re-short, these high valuation, momentum stocks are not going to just break in a straight-line.

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Adult Swim Trade Structure: DVA ($57.84) Sell 1 Apr 52.5 Put to Buy 1 Apr 60/65 Call Spread for $0.15 Debit

Enis:  DVA’s largest holder is Berkshire Hathaway, and Ted Weschler, one of Warren Buffett’s recently hired lieutenants, owns 1% of the company for himself.  While the macro environment for a dialysis operator like DVA looks dismal, the investment thesis is based on DVA’s positioning as the premier operator from both a cost and quality standpoint.  As others are forced out, DVA could be stronger and more profitable as a result.  We liked the entry, but did not want to risk losses until $52.50, which is important technical support, hence the adult swim options structure above.

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TRADE – GM ($38.75) Bought the Dec/March’14 40 call calendar for 1.60

Dan:  Despite GM’s fabulous performance of late, the stock appeared to be poised for a breakout to new all time highs (since exiting bankruptcy 3 years ago) with investors hopeful that the Government exiting its stake will open the door for a share buyback and the introduction of a dividend.  Calendars looked attractive with the stock below the previous highs, as $40 should serve as a sort of technical resistance in the near term.  The trade that we came up with should allow us to leg into a longer term call spread playing for what could be a profound breakout in the near year.

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Thursday Dec 5th:

Action:  Sold to Close ABBV ($49.77) May 50/55 Call Spread at $1.75 for a $0.40 gain

Enis:  I decided to take this call spread off for a profit after the stock stalled near $50 once again.  ABBV ended up breaking out above $50 on Friday, so my impatience was punished in the short-term.  I still have ABBV on my radar for a potential purchase if the stock does pull back in the future, but perhaps I should have put this position into the investment portfolio instead of the trading portfolio, as a way of forcing myself to be more patient.

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TRADE:  QIHU ($84.00) Bought Jan14 80/65/50 Put Fly for $2.60

Enis:  QIHU is a huge, high flying winner in 2013.  But the stock has taken on the technical look of many other high fliers that have broken down over the past couple months.  We wanted to play for a short-term correction in the next 6 weeks with an out-of-the-money put fly that targets the area between the rising 200 day moving average and important $75 support level that we think might break if sellers get more aggressive.

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Name That Trade: AAPL ($567) Buy Jan3rd / Feb 600 Call Calendar for 12.00


Name That Trade: AAPL ($567) Buy Apr 600/650/700 Call ButterFly for 6.00

Dan:   We got a few questions about what do with AAPL after the stock’s strength following the WSJ’s report that China Mobile would start selling iPhones to their 760 million subscribers at some point in the next few weeks.  For those looking for more upside we outlined a couple defined risk ways to play for it, but we opted to look to enter similar trades on a pullback, possibly to $550 as we thought the stock might have incorporated a bit of good news in the short run.

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Friday Dec 6th:

TRADE: Bought GG for $21.19

Enis:  We’ve been watching the gold miners with particular interest since the summer, though we had taken no positions prior to Friday’s investment.  We view the risk/reward of a simple long stock position in GG as particularly skewed to the upside given the current valuation (P/B below 1, assets with break-evens near $700-$900 in gold, and a low liability base) and the technical situation in gold and silver that suggest a bounce might be imminent.

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TRADE: TWTR ($45) Bought Dec Reg / Jan 48 Call Spread for 1.05

Dan:  The stock has traded in a fairly wide range since its IPO on Nov 7th, and Implied Volatility, despite down a good bit from the highs, remains elevated, making outright options purchases a bit dicey to say the least.  It is our sense that TWTR will be one of those stocks where valuation will take a backseat to the perceived scarcity of high quality public social media investments and that the stock could see a run back towards the opening days high near $50 prior to year end.  The call calendar that we bought on Friday takes advantage of selling high IV to help finance the purchase of Jan calls while also offering the opportunity to roll the calendar with the intent to further reduce the cost basis.

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Here was our discussion of the TWTR trade on Options Action from Friday on CNBC:

ALso we had a quick discussion about the technicals of Bonds on Options Action. Enis and I had some thoughts on Friday, we think they are likely a sale on a bounce (MorningWord 12/6/13: Bond SkyFall Coming To A Theater Near You? $TLT), here was the video with a hypothetical trade.   With implied vol so low, outright options purchase look attractive: