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 Mar 3rd – Mar 7th:
Monday Mar 3rd:
Name That Trade(s):
Potentially Buy Volatility in AZO after its earnings report: read here
Hypothetical Trade: HLF ($65.10) Buy the Jan15 50/25 1×2 Put Spread for 5.00
Enis: This hypothetical trade was presented as an alternative to a long-term short position in HLF stock and as an alternative to an outright long Jan15 50 put position, which is likely part of of Ackman’s position. Read here
Tuesday Mar 4th:
TRADE: IBM ($186.75) Buy the Apr4th 190/180/170 Put Fly for $3.20
Enis: IBM has been a laggard for more than 2 years now. While the company has continued to grow earnings, the quality of that earnings stream has significantly deteriorated. IBM has not grown sales over the past 5 years, even though earnings have doubled in that period. The technical setup in IBM looked attractive to fade the stock’s recent strength, in anticipation of a move back to the low 180’s in the coming weeks. As a result, we chose an in-the-money put butterfly structure in order to minimize our time decay but still get decent short delta exposure.
Read here
Name That Trade(s):
Arguments for and against Russian stocks, RSX: read here
Hypothetical Trade: Buy the LNKD ($205) Apr19th 200/180/160 Put Butterfly for $4.10
Read here
Wednesday Mar 5th:
Name That Trade(s):
Hypothetical Trade: GM ($37.85) Buy April 37/40/43 Call Butterfly for .85
Read here
Hypothetical Trade: Buy the BA ($129.20) Apr19th 135/125/115 Put Fly for $3.55
Read here
Thursday Mar 6th:
TRADE: AMD Bought stock for $3.73
Dan: The stock’s poor relative performance to its peers and the broad market, coupled with some unusual options activity earlier in the week caused me to take a look at the stock. With the sentiment so bad in the stock, and short interest at about 20% of the float it was my sense that the stock could be setting up for a move to fill in the gap following Q4 earnings. After looking at implied vol and debating some options trades I opted to just buy the stock as it is often hard to find a structure that offers a better risk reward in a low single digit stock.
Read here
Trade: EWG ($31.50) Bought the July 31/27 put spread for 1.00
Dan: After last Monday’s sell off in global equities, it became apparent that Germany’s DAX could be one of the most vulnerable, as one of Russia’s largest trade partners if the situation in the Ukraine were intensify. Looking at the options of EWG, the etf that tracks the DAX, they looked cheap enough to make an outright bearish bet with the intent to spread them on the next move lower like the one we had last Monday. We are of the mindset that there is not likely to be quick solution to the tensions in the region and that few risk assets are pricing a situation that could cause the delicate economic recovery in Europe to stall.
Read here
Friday Mar 7th:
TRADE: WFM ($53.70) Buy the April/May 50 put calendar for .80
Dan: Checking back in on the technical situation on WFM, coupled with the atrocious price action of competitor TFM after giving a slightly better outlook, I wanted to create a trade structure that has me financing puts for WFM’s upcoming fiscal Q2 earnings report in early May. I will look turn this spread into a vertical once the short strike rolls off if the stock is 50 or higher on April expiration.
Read here
Trade: JPM ($59.40) Buy the April 11th Weekly 59 put for 1.45
Dan: The stock’s inability to break out to new 52 week highs could be a sign that the week’s strong performance in the sector could be ready for a pause as investors get ready to receive the results of the Federal Reserve’s stress test for the banks. It is not that I feel JPM is going to have a negative result, but merely that the stock’s recent outperformance could signal to high of expectations and that options prices are fairly cheap considering the potential for volatility emanating from Europe (the EuroStoxx bank index closed down 2% on Friday), the failed technical breakout, and Q1 earnings scheduled for the morning of April 11th, the day these options expire. I will look to spread these on the first big down day in the stock in an effort lower my break-even.
Read here