Trading Diary: February 10th – 14th

by Enis February 17, 2014 7:58 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed or expired in the week that was Feb 10th – Feb 14th:    

Monday Feb 10th:

Action:  Buy to Open the WYNN ($223.90) March 207/185 put spread for 2.93

( I doubled the size of my initial position giving me an average)

New Position Average $4.72

Dan:  When I initiated this bearish position after disappointing January data in Macau, I suggested that I was going to start small so that I left so powder dry to average in, and that is exactly what I did with the stock making new all time highs.  Trying to pick a top in a stock like this is a fools errand, but we chose March expiration because if the February data shows a similar deceleration it could cause some bulls to think that maybe January was not a “one off” situation.  Additionally much of the market’s volatility so far in 2014 was the result of mixed date in emerging markets, specifically China, if this were to catch some steam once again, stocks of companies like WYNN they get a disproportionate amount of their sales from the region could be vulnerable.

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New Position: GOOG ($1176) Bought to open Feb 1150 Put for 6.70

New Average on Position $6.85

Dan:  This trade was nearly a train-wreck from the beginning as my initial poor entry was bailed out by a weak broad market which allowed me to book a profit in the position giving me some leeway to add on a bounce.  Well the stock not only bounced back to my initial entry but ran to new all time highs by the end of the week.  At this point my position has a very small probability of breaking even by Friday’s expiration, but I did not sell the puts as they were very dollar cheap and I unfortunately I would rather leave them on for about $1 and have on a lotto ticket.

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Action:  GLD ($122.92) Sold to close the Feb22nd 120/125 Call Spread at $2.75 for a $1.28 gain

Enis:  We had waited patiently on GLD since initiating this trade on January 2nd.  However, we ended up selling it early, in hindsight, as the Janet Yellen testimony on February 11th was a major event, and I was nervous that the call spread, which was almost a double on Monday, was liable to lose a lot of its value if gold reacted negatively to the testimony.  The risk/reward of hanging on for an extra $2 vs. potentially losing $2 on the call spread did not seem worth it, so we took the trade off.  Gold continued higher, but the decision given what we knew at the time (and the short time left to expiry) was still likely the right one.

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Action: RAX ($40.40) Sold to Close March 40 / 50 Call Spread at $2.85 for a $0.85 gain

Dan:  Heading into the company’s Q4 results with a decent profit on a position, a position that was fairly speculative from the get go, I decided to take my risk off of the table as a I had very little confidence that the company would report results that were better than expectations.  I still contend that if you are going to play contrarian stories like RAX for anything other than pure fundamental reasons that defining your risk with options is the way to go.

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Tuesday Feb 11th:

Action: AAPL ($536) Sold to Close March 525/550/575 call butterfly at 6.30  for a 2.70 loss

Dan:  With the March Butterfly between my long strike and the short strike it had little delta and the only way for it to become more valuable was for the stock to settle and the time value of options to erode.  With the Butterfly being part of a repair strategy from our earnings call calendar, the trade served some of the intended purpose by getting back some of the prior trades losses.  I felt it made sense to close the trade rather than keep the capital tied up and risk the potential for the stock to come back in below my long strike and thus give back some of the recouped premium.

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Action:  Bought the Feb14th 26 put for 0.26 against long GG ($26.62) stock position

Enis:  GG was slated to report earnings later in the week, and after our experience with TTWO’s earnings (another stock in our investment portfolio), we wanted to give ourselves some cheap protection in case the reaction on earnings was quite negative.  The weekly put at 0.26 was cheap in premium, especially considering GG’s big run-up over the past couple of months, so we were willing to pay for the put even at the risk of owning a worthless put by the end of the week.

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Trade: SPY ($181.89) Bought March 31st quarterly 180 / 170 Put Spread for 2.00

Dan:  With the broad market racing back from the prior week’s lows that saw the S&P 500 decline almost 7% from the all time highs made in January, we thought it was a good time to execute a portfolio hedge that we had introduced the prior week.

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Wednesday Feb 12th:

Action: NKE ($74.7) Sold to close the March 72.50/ 77.50 call spread at 2.15 for a .75 gain

Enis:  NKE had approached the $75 resistance level early on the day on Wednesday.  We viewed $75 as likely to be stout resistance (and NKE has not been able to cleanly break it even after broader market strength later in the week), so we took the trade off when we saw NKE fail at that level on Wednesday.  The call spread was a low risk way to get exposure to a bounce in NKE near the $70 support level, but we are less optimistic about the longer-term prospects for NKE stock given the extent of the stock’s weakness to start 2014.

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Trade: IWM ($112.35) Bought March 112/107 Put for 1.35

Dan:  The broad markets continued rebound and the subsequent decline in the price of options off of a multi month high put in the prior week made the prospect of directional bets targeting re-targeting the recent lows attractive.  We like using the etf on the small cap index as it should provide a bit more juice to the downside in the event of a quick turn.

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Thursday Feb 13th:

TRADE: Bought NTES for $71.72 (For Investment Portfolio)

Enis:  NTES was a name that had been on our radar for a potential long position since our Deep Dive post in late November.  Back then, we had outlined why we thought the stock was cheap on a valuation basis, in addition to the secular trends in the company’s favor given the substantial growth in the Chinese internet sector.  NTES reported earnings on Wednesday after the close, and we were surprised to see the stock trading near unchanged on Thursday morning after what we viewed as a very strong report.  As a result, we decided to add the position to the investment portfolio, with some additional comfort since important technical support was in the $65-$70 area.

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Friday Feb 14th:

Action:  Sold GG at $27.77 for a $6.32 gain (including the loss on the weekly put protection)

Enis:  While we only held GG in the investment portfolio for a little more than 2 months, it was by far our best performer, taking off like a rocket ship once the calendar turned to 2014.  The precious metals miners continue to sport relatively cheap valuations, particularly relative to the broader market.  However, our thought is that the price appreciation to start the year has been so swift that the sector is likely due for choppier price action.  While that might lead to higher prices, we’d rather sit out the chop as the miners approach longer-term resistance, so that we’ll be able to assess the group with no mental baggage.  If the technicals set up in both the miners and gold and silver, we might look to re-enter the miners with other long positions later this year.

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Action:  XOM ($93.40) Sell to Close April 85/92.50 Risk Reversal at 2.45 for a 2.45 gain

Dan:  The stock had a nice quick bounce off of the support level that we had identified earlier in the month and we contemplated closing the short put and spreading the long call, but for a stock that moves as quickly as XOM can we decided on just booking the short term gain and look for a better re-entry.

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Action: HLF ($66) Sell to Close Feb 70/60/50 Put Butterfly at $3.40 for a 1.90 gain

Dan:  With just 4 trading days to the expiration of this trade, and a potentially volatile event in Tuesday’s earnings report we decided to close the position while it was in the money and not risk the gains on an event that we have no clue of the outcome.  Even with the quarter pre-announced and the company just issuing a convertible bond to fund and accelerated share buy-back, HLF management has proven that they will go to great lengths to squeeze the shorts. While we think the company has very fell bullets left to aim at the bears, our trade does not set up well for a potentially binary outcome.  We will definitely be taking another very close look following the results with an eye towards targeting $50 on the downside in the coming months.

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Trade: Buy VZ at $46.68 and Sell the May 50 call at .50

Dan:  In a global economic environment where growth looks strained, with many of the risks emanating from emerging markets, and domestic yields remaining subdued in the face of the Fed’s Taper, investors could once again focus on bond proxies or defensive stock’s with heavy revenue exposure in the U.S.  In our mind a stock like VZ checks many of boxes if you agree with our view of the global economy. While the 4.5% dividend yield is very attractive, the elevated levels of implied volatility make the idea of overwriting a long stock position with short calls interesting with the intent of creating an even fatter yielding and created a 2% buffer to the downside over the next 3 months.

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