Trading Diary: March 24th – March 28th

by Enis March 30, 2014 5:34 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, Mar 24th – Mar 28th:  

Monday Mar 24th:

ACTION – ADBE (65.60) Sell to Close the Apr19th 70/65/60 Put Fly at $2.55 for a $1.02 gain

Enis:  ADBE quickly sold off to near the midpoint of our bearish put fly that we initiated after ADBE earnings.  With butterflies, it generally pays on average to take off the trade anytime the stock nears the midpoint of the fly rather than wait until expiry (not just anecdotal evidence, but historical studies bear that out as well).  As a result, with no desire to wait another 4 weeks until expiry, we took off the ADBE position.

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Tuesday Mar 25th:

TRADE: Bought GG for $25.50

Enis:  Our GG long position from early December to mid-February was our best performing long in our investment portfolio to date.  The fundamental case for GG still makes sense given its distressed valuation (right around book value), especially if gold and silver do not make a new price low in the coming months.  With the stock’s selloff back to technical support, we re-initiated our long position in the stock for the investment portfolio.

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Wednesday Mar 26th:

ACTION:  Sell to Close GE ($25.76) Apr 25 calls at 1.00 for a .05 gain

Dan: While we still like the set up in the stock for a move back to the Jan highs near $28, we no longer like the risk reward of holding in the money calls as we approach April expiration. We will look to roll out this bullish view on a pull back in the stock closer to $25.

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ACTION:  YHOO ($36.50) Sold to Close the April 38/34 Put Spread at $1.85 for a .75 gain

Dan:  We felt that we caught the right entry from the short side after the news that Alibaba had chosen the U.S. for their impending IPO and wanted to make a play that investors would possibly “sell the news”.  After getting the quick sell off we decided to take the profit and look for possibly a long entry below $35 or another short entry back towards $40. We believe YHOO will continue to be a good trading vehicle leading up to Alibaba’s IPO and certainly after.

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ACTION: LNKD ($188.60) Sell to Close the May 200/170 Put Spread at $14.10 for a $3.60 Gain

Dan:  LNKD’s poor relative strength to the broad market and its peers made it an easy one to pick on from the short side last week.  The stock’s quick break of the $200 level proved to be the catalyst for a quick move back towards the prior low near $180.  With a quick near term profit and the stock apparently looking a tad oversold we decided to close the winning trade as we had no real fundamental reason for it in the first place, purely a momentum trade.

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Action: Sell to Close FB ($61) April 65/60/55 Put Butterfly at 1.60 for an .80 gain

Dan:  FB shares got the negative fundamental catalyst in their $2 billion acquisition of virtual reality hardware maker Oculus to cause a nasty technical breakdown to prior support at $60. Our bearish trade became a quick double and we decided to close as we expect the stock to find some support at $60 and fear the risk of a bounce back to the mid $60s in the coming weeks could bring this trade right down to the wire on April expiration.

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TRADE: EBAY ($55.78) Bought May 55/60/65 Call Butterfly for 1.20

Dan:  We have identified two potentially bullish catalysts for the stock in the next 2 months and feel that activist investor Carl Icahn should keep a bid to the stock in the mid $50s prior to Q1 earnings and the company’s annual shareholder meeting on May 13.

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Thursday Mar 27th:

TRADE:  WHR ($143.79) Buy the May 140/130/120 Put Fly for $1.77

Enis:  WHR has been on our radar for more than a year because of the volatile nature of its earnings stream over the past decade.  Given the relatively weak housing data over the past few months, as well as WHR’s weak earnings report in January, we have been watching WHR for a favorable entry on a bearish-biased position.  We pulled the trigger on Thursday ahead of the busy macroeconomic calendar in the upcoming week.  The economic releases in the coming week are likely to impact cyclical, domestic businesses like WHR disproportionately.  If the put fly premium gets to $1 or below, we will likely exit the trade for a loss.

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ACTION: COST ($111.96)  Sell to Close the Apr4th 115 Put at $3.10 for a $1.30 Gain

Enis:  COST has found support around $112 on several occasions in the past month.  We waited on Thursday to see whether COST could break the $112 support level convincingly, which would have likely brought the $110 support level into play.  However, when $112 looked to hold on Thursday afternoon, we decided to take off the put position, especially since that trade had only 1 week until expiry.

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Friday Mar 28th:

Action: Sell to open DDD ($59.90) April 65 call at 1.05
New Position: Long DDD ($59.90) April 60/65 Call Spread for .65

Dan:  A week earlier we made a defined risk contrarian bullish bet that DDD would rally off of key short term oversold condition.  With the stock  apparently stabilizing right below the call strike that we own, we thought it was prudent to turn the calls into a vertical spread by selling a higher strike call in April expiration, lowering our break-even and protecting against decay, but limiting our potential profit.

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TRADE:  MS ($30.88)  Buy May 30/28 Put Spread for $0.53

Enis:  Ahead of bank earnings, analysts have been continually reducing 1st quarter earnings estimates.  MS has quite high expectations for 2014 earnings growth compared to the rest of the sector, as Wall Street analysts seem to be extrapolating the favorable trends from 2013 for MS into 2014.  However, the start to this year has been quite weak for the equities and fixed income businesses (though capital markets is better, with a very busy IPO market).  With that in mind, expectations look to be too high in 2014.  We entered a new put spread looking for a move down to the $28.50-$29 support area in MS.

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