Trading Diary: Jan 13th – Jan 17th

by Dan January 20, 2014 6:48 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Jan 13th – Jan 17th:    

Monday Jan 13th:

New Investment:  Going Gaming

Enis:  We had first looked at TTWO in our Deep Dive post in December.  The company’s prospects looked bright even after the initial enthusiasm for Grand Theft Auto V would fade.  The product portfolio’s diversity, digital strategy, and international expansion were all evidence of management’s competence in building out a sustainable business after years of simply relying on new GTA releases for earnings and revenues.  While we were obviously early in pulling the trigger (with the stock leaning against the 50 day ma early in the week), we like the long-term strategy and earnings power of TTWO, and the cheap valuation of the stock as well.

Read here

Tuesday Jan 14th:

Action: Sold to Close F ($16.32) Feb 15/17/19 Call Butterfly at 1.00 for a .42 profit

Dan:  When we made the bullish trade the stock was getting oversold on a near term basis after issuing a less than stellar sales forecast.  With the stock bouncing to very near the breakdown level, filling in most of the earnings gap, and banging up against technical resistance at its 50 day moving average we thought it best to take the profit and look for a better re-entry, possibly back towards $15.

Read here

TRADE: EBAY ($52.93) Bought Jan 24th (next week) / April 55 Call Spread for 1.35

Dan:  Heading into this week’s Q4 earnings event, expectations for a beat ad raise quarter are not exactly high, yet implied volatility is elevated as one would expect.  It is my belief that there are many attributes about EBAY, its balance sheet, cash generation etc that could make it a very attractive candidate for activist investors.  The stock is under-appreciated relative to most of its large cap tech peers (valuation to expected growth) and if some persuasive investors were able to cause the company to increase share buybacks and possibly issue a dividend, the stock could possibly break out of the 18 month range it has been in.  The call calendar offers me the opportunity to finance the purchase of longer dated calls.

Read here

Wednesday Jan 15th:

Action: Sold to Close XLF ($22.07) Jan 22 calls at .11 for a .01 gain.

Dan:  Back in late November we like the prospects of bank stock’s rallying into year end and possibly into their Q4 earnings reports in mid January.  We financed the purchase of Jan 22 calls in 2 different occasions and ended up owning the calls for what would have been the decay over the last month and a half.  While the set up felt like a win legging into the trade for less, the etf never broke out offering significant profit potential.  With 2 days left to expiration the prudent thing to do was to sell the calls for just about what we paid and look for a better re-entry.

Read here

Name That Trade:  YUM ($73.20) Buy the Feb 77.5/72.5/67.5 put butterfly for $1.50

Enis:  YUM has been a name with major ups and downs over the past 3 months, though the stock is flat over the last 18 months.  The stock has interested us since its fundamental troubles continue in China (with weak same-store sales results last week), but the valuation is relatively appealing and the potential for significant growth in earnings in 2014 is high since the 2013 numbers are so low.  With that push/pull backdrop, we looked at a potential range-play strategy for the next month.

Read here

TRADE: RAX ($37.93) Bought March 40/50 Call Spread for 2.00

Dan:  Some interesting bullish options activity drew our attention to this story, and while we don’t usually chase others options trades, this was a decidedly bullish trade, follow up with more the following day.  After taking a look at the sentiment and potential catalysts, we decided to place our own trade with a fairly different risk profile than the way that we observed, we clearly defined our risk.  Why?  Because this was a speculative trade in a volatile stock, and wanted to risk and risk what we are willing to lose.  We also hate chasing stories, so we are going to start small, and look to add on a pullback.

Read here

Thursday Jan 16th:

No trade activity, but discussed the unusual options activity in HLF and TGT breaking to new 52 week lows.

Friday Jan 17th:

Trade: XHB ($32) Bought March 32 Put for 1.05

Enis:  Housing was a sector that led the bull market rally from the fall of 2011 to the spring of 2013.  Over the past 6 months, however, the sector has been a major laggard.  Higher interest rates are the obvious culprit, but we have received numerous other data points in the first couple weeks of 2014 that indicate that the U.S. consumer might also be tightening up the purse strings more broadly.  Retailers have reported dismal holiday sales numbers, and the auto companies lowered guidance for 2014.  If the U.S. consumer is weaker than expected, then the housing sector could be in for a particularly harsh reception over the next couple of months.  In addition, implied volatility in XHB is near 2 year lows.

Read here

TRADE: Bought the HLF ($71.10) Feb 70/60/50 Put Butterfly for $1.50

Dan:  Implied volatility became jacked due to the fairly large purchase of Jan15 50 puts from the prior week and the 40% plunge in NUS, another multi-tier marketer, due to regulatory inquiries in China of their business model.  HLF gets less than 10% of their sales from China, as opposed to the more than 35% of NUS, but most investors have large gains in HLF in the last year and seemed happy to shoot first and ask questions later.  With the idea that the momentum may be shifting in the stock, we wanted to look for a relatively low premium way to make a near term direction bet that the stock would move back towards technical support at its 200 day moving average.

Read here


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.

12:42 PM EDT – OCTOBER 9, 2013 BY ENIS

TRADE: FXE ($133.70) Bought Jan14 133/128 Put Spread for $1.35

11:25 AM EDT – NOVEMBER 12, 2013 BY ENIS and DAN

New Trade: Buy YELP ($65.55) Jan 60/50/40 Put Butterfly for 1.75

1:29 PM EDT – NOVEMBER 22, 2013 BY DAN and ENIS

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

11:02 AM EDT – DECEMBER 5, 2013 BY ENIS

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

3:41 PM EDT – DECEMBER 18, 2013 BY DAN and ENIS

TRADE: DDD ($81.75) Bought Jan18th expiry 80/70/60 Put Butterfly for 2.20