Trading Diary: Dec 9th – Dec 13th

by Enis December 15, 2013 7:04 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 9th – Dec 13th:    

Monday Dec 9th:

Trade: Overlay Against 100 shares of Long GLW ($17.08) Sell Jan 16 / 18  Strangle at $0.40

Enis:  One goal of our investment portfolio is to demonstrate the use of options for long stock positions in adding yield, protection, and/or leverage.  In the case of GLW, we like the technical setup for continued rangebound price action through the holidays, so we wanted to take advantage of that view to add some incremental yield to our long stock position in the interim.  We chose the Jan 16/18 strangle based on that technical analysis, but wanted to avoid a short options position during GLW’s next earnings report, which is after Jan expiry.

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Tuesday Dec 10th:

TRADE:  CMG ($522.50) Bought Jan / March 500 Put Calendar for 15.00

Dan:  Last week saw quick moves lower in a couple consumer cult favorites like SBUX and NKE.  While these are great companies who executed well in a difficult consumer spending environment in 2013, their relative valuation and their stock performance ytd may adequately reflect the bull case.  CMG is another stock with similar attributes to the above listed stocks, and it is our sense that an Ah-HA moment is likely coming for the burrito company that trades at trades at 5x sales.  The stocks inability to make a new high with the broad market over the last couple weeks gives us some hope that investors could be rotating out of prior winners as we head into a different stage of the bull market, a market that will be less fueled by the easy money policies by the fed.  The calendar sets up nicely into a holiday period where a slow drift, or a consolidation should help this position as we set up to own longer dated puts in March.

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Wednesday Dec 11th:

Action:  Sold to Close GME ($46.07) Dec21st 50/46/42 Put Fly at $2.11 for a $0.85 gain

Enis:  GME was trading right at the $46 midpoint that we had targeted with our put fly in late November.  Since the majority of the time decay for this put butterfly will occur in the final 3 days of expiry, we preferred taking off the position for a nice profit on Wednesday, as opposed to having to hold through the FOMC event next week.  If GME finds its footing all the way back to $50, we might take a shot on the short side once again.

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TRADE: Bought the COST ($119.15) Jan 120/115/110 Put Butterfly for 1.15

Dan:  With two consecutive earnings disappointments with the most recent same store sales reading coming in at the lowest level since Sept 2009, this stock which trades at a healthy premium to its peers looked ripe for a bit of a re-rating until investors get a read on Dec sale which should not come until the first week of Jan.

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Thursday Dec 12th:

ACTION: P ($26.30) Sold Dec 29 Put to Close at 2.85 for a 1.25 profit

Dan:  The stock finally broke key short term support at the 50 day moving average offering the opportunity to take a quick gain in the puts that I was long on an outright basis.  This trade was always meant to be a tad contrarian as it is one of the few web 2.0 names that has not exhibited any weakness in the last couple months.

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ACTION – Sold to Close TWTR (54.50) Dec/Jan 48 call calendar at 1.05

Dan:  Got the direction very right, but the magnitude and the timing of the move very wrong. With the position worth what I paid after an an almost 2o% move in four trading days I decided to close the position and chalk off the trade as more of a missed opportunity rather than a loser.

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Friday Dec 13th:

TRADE: FXY ($94.72) Bought Mar 97 Call for $1.17

Enis:  I highlighted the importance of the technical situation in the yen as it approached 5 year lows at the start of December.  After a bout of strength early in the week, the yen made a new low for the year overnight on Friday, only to reverse higher in the morning.  That set up a potential move higher for a yen after a false breakdown.   The technical setup coupled with the extremely skewed sentiment made me consider a long yen position.  Finally, options premiums are cheap, so I pulled the trigger on a simple long call position on Friday.

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TRADE: TSLA ($151) Bought Dec 27th 150 Puts for 5.50

Dan:  To suggest that the stock has been a bit volatile for the last 9 months would be a bit of an understatement.  But despite the stocks almost 40% fall from the highs, and its subsequent 30% bounce in the last 2 weeks, the implied volatility on the stock has actually settled a bit.  The bounce to the 50 day moving average in such quick fashion appeared to be an attractive entry point for a contrarian short trade.  We are going to keep this one on a short leash.

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ACTION – Bought to close all of the VIX Dec 14 puts for 10c, sold to close 1/4 of the 15/18 call spread at .60 to cover the cost of the puts.

CC:  The idea here was to remove our risk of a VIX settlement below the 14 level on Wednesday morning of VIX expiry.  Since the cost to buy back the put was only 10 cents, the risk/reward was no longer there to hold on to that short position.  We financed that purchase by selling 1/4 of our long call spread position.  We now have the other 3/4 of the long call spread position on for no premium outlay and no risk of loss vs. our initial entry.

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