Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Jan 6th – Jan 10th:
Monday Jan 6th:
Trade Update – $SIRI: Liberty is getting Sirius
Dan: It is our sense that the stock is a decent hold a current levels as the action by Liberty is probably not the last we hear about this deal and most likely headlines from here on out would be about higher prices with little chance of lower. If the stock were to get going though $4 we would possibly look to sell a longer dated call strike call because at some point it’s basically locking in a certain percentage in profits from the trade (assuming the deal keeps the stock above purchase price) as the premium of the call will go to zero once the deal is finalized. Read here
Tuesday Jan 7th:
Trade: $GME ($48.80) Bought the Jan18th/Feb 46 put calendar for .70
Enis: We have had our eye on GME for several months, starting with a Deep Dive post in the fall that outlined the business risks that the company faced as the new console cycle (PS4 and XBox) approached. As expectations rose in 2013 in anticipation of that new cycle, perhaps it was to be expected that actual results would disappoint. After commentary from MSFT about the weakness in XBox sales, we wanted to play for a move back to the $45-$46 support area in GME, and decided on a put calendar given an expected sales release on Jan. 14th.
New Investment: Sell the ABBV ($50.60) August 45 Put, Buy the August 52.5/60 Call Spread for 0.10 credit
Enis: ABBV is one of the few large cap pharma stocks with an enviable long-term pipeline of drugs. In that respect, it resembles a biotech company more than a traditional slow-growing pharma stock. We are optimistic on the stock’s prospects as a result, and when the stock pulled back to near the $50 support level mid-week, we entered a longer-term investment position in ABBV. We decided to use the options structure as opposed to simply buying the long stock because of the potential near-term risk if $50 support does not hold.
Wednesday Jan 8th:
Action: Sold to close the COST ($115) Jan 120/115/110 Put Butterfly at $2.80 for a $1.65 gain
Dan: A little less than a month ago we took a near term negative view on COST as their 2 consecutive sales disappointments was too much to ignore for a stock that had just recently made new all time highs in the 2 weeks prior. The stock is now down 9% from the Nov 27th highs and is sitting on key technical support at $115, which also corresponds with the stock’s 200 day moving average. We are now going to exit this position for more than 2x what we paid.
Thursday Jan 9th:
TRADE: HD ($81.44) Bought the Feb22nd 80 Put for $1.09
Enis: We have viewed HD as quite overvalued for many months now, but that’s not reason enough to enter a position. However, the third failed breakout in the last 6 months, on top of general weakness among the homebuilding-related stocks got us interested. Add to that the cheap level of HD implied volatility, and we decided on a new position on Thursday given the favorable risk/reward. The $82.50 to $83 area is key resistance to watch.
ACTION – Bought to close the GLW (18.00) Jan 16/18 strangle for .26 (sold at .40) for a .14 profit
Dan: Since we put on the options overlay, GLW continued another 5% higher and our overlay (short 16/18 strangle) was at our call strike to the upside. Decay has kept the structure in check and it can be taken off for a small profit now. With expiration next week we’re going to close the structure and look for something new in the next expiration or so as earnings while continuing to hold the long stock.
Friday Jan 10th:
Action: Sold to close the $GME ($45.02) Jan18th/Feb 46 put calendar at $1.00 for a $0.30 gain
Enis: GME reacted very negatively to news on Tuesday that Sony was going to try out a new streaming service for games for PS4. Investors were clearly concerned with the potential long-term negative implications for GameStop, and the stock was down 8% as a result. The real event we were playing for was the company’s sales release on Jan. 14th, but given the volatile move lower, we decided to take our profits rather than sit through the sales event next week.
Trade: NKE ($77.05) Bought Feb 77.50 / 72.50 Put Spread for 1.50
Dan: When NKE reported their fiscal Q2 earnings on Dec 19th, on the surface it looked like a bang up quarter with better than expected gross margins and futures orders in front of what should be two very substantial catalysts this year with the Olympics in February and the soccer World Cup in June. The stock stalled out since making a new all time high late last year as some investors may view the stock as expensive relative to its expected growth, but also possibly concerned with the increase in marketing costs, inventories and continued sluggishness in emerging markets. We chose and in the money put spread to make a near term bearish bet as the weakness in some high valuation consumer discretionary stocks like BBBY and WFM could possibly find its way to a stock like NKE, but we will keep this one on a short leash.
Name That Trade – $AAPL Turnover: 3 Ways to Play
Enis: We discussed the overall fundamental and technical backdrop in AAPL ahead of the earnings event on January 27th. Our overall opinion can be characterized as slightly bullish, but we each had a different preferred strategy to possibly play that view over the coming weeks or months. Though we executed none of the ideas yet ourselves, we wanted to lay out our rationale and thoughts in case we decide to pull the trigger next week.
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.
TRADE – Z (77.00) Bought the Jan10th 79/71/63 put Fly for $2.21