Trading Diary: Feb 24th – Feb 28th

by Enis March 2, 2014 6:57 pm • Commentary

Here is a quick recap of all of the trades that we initiated, closed, managed, expired and considered (Name That Trades) in the week that was Feb 24th – Feb 28th:      

Monday Feb 24th:

TRADE: Bought T for $32.60

Enis:  In a broader market environment full of euphoria for story stocks with no current earnings, we have been quite selective in what we add to our investment portfolio, focusing on margin of safety, value, and business sustainability.  While AT&T is the most boring stock that we’ve added to the portfolio to date, its valuation, technicals, and fundamental outlook give us confidence that at the least, our downside in T is quite limited, with a decent shot at a 10-20% gain over the next few months.  AT&T has found support around $32 on multiple occasions in the past month, while $30 is more important long-term support.

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TRADE: CL ($62.40) Bought April 62.50 Put for 1.45

Enis:  CL has been on our radar since the middle of last year, ever since the trailing 12 month P/E approached a 10 year high.  Colgate’s business prospects, strategy, or management has not changed in years, but investors value the stock much more highly than at any time in the past decade.  When we saw significant relative weakness from CL on the most recent market bounce, I pulled the trigger on a bearish biased position early in the week.  The cheap implied volatility was also a boon, as the put has almost 2 months until expiry for the at-the-money put strike.

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Tuesday Feb 25th:

Action:  CAT ($96.90) Buy the Mar22nd 95/90 1×2 Put Spread for 0.55
New Position – Long the Mar22nd 95/90 1×1 Put Spread for 2.25

Enis:  My general rule is to avoid adding premium to an existing loser.  In the case of CAT, the worsening price action in China and CAT’s stall near the $98 level led us to pull the trigger on an adjustment to our existing CAT put position.  We changed the position from a very low probability position (long the Mar22nd 90 put), to much better position (if still low probability, long the Mar22nd 95/90 put spread), for only an additional 0.55 in premium.  We felt alright putting the extra premium at risk given the substantially improved risk/reward of the new structure.

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Name That Trade:

Three Dementia – DDD: read here

Wednesday Feb 26th:

Action:  Sold TTWO at $19.46 for a $2.06 gain, or a 11.8% gain

Enis:  TTWO has had a terrific few weeks after its negative reaction to its February earnings report (which I thought looked quite positive).  The stock has stalled around the $20 level, which is not necessarily negative after such a large run.  But my view is that the good news for TTWO is now out for the company after a strong second half of 2013.  No major catalysts are on the horizon in the near term.  We decided to take our profits, though we’d get interested again if TTWO worked its way back down to the $17-$18 area.

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Name That Trade(s):

Pairs Trade Potential – SBUX & DNKN: read here

Considering Fruit Flies – AAPL: read here

Thursday Feb 27th:

TRADE: GE ($25.48) Bought April 25 Call for .95

Dan:  After closing 2013 on the dead highs of the year, GE has under-performed fairly dramatically this year, making up little ground off of last months lows, despite the S&P 500 making back all of its peak to trough loses.  Despite the poor relative performance, the options on the stock are cheap and the technical set up looks solid if the stock can hold $25.  We chose an in the money call as we want to use $25 as a hard stop on the downside.

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Name That Trade(s):


Putin’s Game of Chicken Kiev – EEM, TLT, RSX: read here

Big Blues – IBM: read here

Tronic Boom – MDT: read here

Friday Feb 28th:

TRADE: Bought SODA for $39.40

Enis:  We would be interested in SODA as a potential long for the portfolio in the absence of takeover speculation, based simply on the stock’s cheap valuation and the growing market for self-serve beverages.  However, after Coke’s purchase of a stake in GMCR, SODA’s potential upside has increased, even if no acquisition ever materializes.  The fact that Coke was willing to pay as much as it did for the GMCR stake speaks to the potential opportunity for all players in the market, but it also highlights the franchise value of SODA, at least in the opinion of the largest beverage company in the world, Coke.  Add it all up, and we see a skewed risk/reward setup, though SODA’s volatility has us watching the $35 area as a potential stop-out level on the downside, while our target is around $50 on the upside.

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Action: Sold to Close EBAY (59.60) March 55/60/65 call butterfly at 2.40  for a 1.45 gain (paid .95)

Dan:  Our bullish thesis on EBAY was largely predicated on what we felt we be increased rhetoric by activist investors pushing to unlock shareholder value.  With 2 letters to EBAY shareholders and their board this week, the stock broke out to new nine year highs, placing the stock right at the sweet spot of our bullish call butterfly with just 3 weeks to expiration.  We thought it best too book the healthy profit and look for a better re-entry.

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TRADE: XLK ($36.19) Buy March 28th weekly / June 37 Call Calendar for .50

Dan:  As the Nasdaq trades back to 14 year highs, we would much rather express bullishness for large cap tech stocks through the XLK due to what we feel is a fairly defensive makeup of the top 15 holdings.  While we are not expecting a breakout anytime in the next month or so, we like the idea of financing longer dated calls through a calendar that we will look to roll in a month.  Implied vol on the etf is cheap and we are not selling the shorter dated calls to capture an IV spread, merely to help finance the purchase.

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