Trading Diary: April 28th – May 2nd

by Dan May 4, 2014 5:16 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 Apr 28th – May 2nd:    

Monday Apr 28th:

Action: Sold to Close NFLX ($317.20) May 370/340 Put Spread at $26 for a $20 profit

Dan:  After legging into a put spread the prior week and catching a more than $50 decline, the spread could only possibly be worth a few more dollars on expiration.  So with the stock well below our short strike, and the stock very oversold on a near term basis we decided to take the profit and move on as the risk of trying to make the last few dollars and holding the spread and hoping that the stock did not bounce did not outweigh leaving some prospective loot on the table.

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Trade: UA ($45.97) Bought May/June 50 call calendar for.72

Dan:  With UA getting fairly oversold on a near term basis approaching technical support at $45 we thought that the stock’s impending addition to the S&P 500 on Wednesday’s close could serve as a decent short term positive catalyst for the shares.  While we did not want to get long calls outright, we liked the idea of targeting a strike and getting mildly bullish exposure through a call calendar.

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TRADE: HLF ($59.20) Bought the May 2nd weekly 59/55/51 put fly for .60

Dan:  After reviewing the company’s Q1 results, and most importantly focussing on the company’s decision to halt their dividend and use the money to buy back shares it was my sense that investors would see this act for what it is, desperate.  I wanted to make a near term bearish bet against the shares with the thought that when the company was done buying back shares by mid week the stock would re-trace a bit of the recent gains.  This trade was a bit of a flier, meaning I put it on right before the end of the day, and we labeled it as an “adult swim” trade, meaning that it wasn’t a particularly high probability trade due to having to get the direction right very quickly.

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Tuesday Apr 29th:

TRADE: HLF ($60) Bought the August 55/40/25 put fly for 2.50

Dan: The short term weekly put fly (described above) was one way to get some immediate bearish exposure, but not one that I had a ton of conviction on, as stated in the post, but I wanted to look for a structure that gave me a lot more time and a much wider range for profitability to the downside in the event that regulatory scrutiny increases on HLF’s marketing practices.

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TRADE: EBAY ($53.97) Bought June21st 50/55/60 Call Butterfly for $1.80

Enis:  EBAY has traded in the $50 to $57.5 range for the bulk of the past 18 months.  The fundamental valuation still looks cheap, though investors have been frustrated by the lack of movement on a potential PayPal spinoff or more robust growth in the marketplace business.  We decided on a range trade ahead of the earnings report.  After the report, EBAY sold off 6%, partly due to tepid guidance, and also likely in part due to management’s decision to repatriate $6 billion of foreign cash, presumably for an acquisition.  Given high valuations in the internet space, some investors sold on that news rather than wait for the acquisition announcement.  We are still holding the call butterfly, which ended the week near unchanged.  We will look to sell it for a profit on any move back towards $55, and sell it for a loss on a move below $50.

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Wednesday Apr 30th:

TRADE:  SBUX ($70.58) Bought Jun21st 70/65 Put Spread for $1.40

Dan:  SBUX’s relative under-performance remains glaring as the SPX once again flirts with new all time highs.  The company issued and earnings report and commentary on input costs that for a very short while seemed to satisfy investors.  With the stock absorbing a so/so report, the stock appeared to be poised for a bounce off of key support at $70 by the end of last week, expect that the price action this week suggested a re-test of the prior lows despite the overall market closing up on the week.  Options on SBUX were not particularly expensive so we decided to merely by an at the money put spread playing for a break of support in the coming weeks.

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Name That Trade:  Reviewing YELP Strategies

Dan:  With the stock very oversold heading into the company’s Q1 results we laid out a couple ways that we would be inclined to play.  Our main take-away was that it is not a great trading strategy to press shorts into events when stocks are very oversold.  For those looking to make directional plays we liked the idea of calendars at or near the implied moves.

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Thursday May 1st:

Action:  Sold to Close UA ($50.25) May/June 50 call calendar at 1.07 for a .35 profit

Dan:  The stock did what we wanted it to do, but almost too soon moving exactly to our strikes with the benefit of the catalyst that we identified.  We decided to take the quick small profit as the risk reward did not suggest waiting for May expiration for the stock to remain in such a tight range.

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Name That Trade – Mastercard MA When Credit is Due

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Friday May 2nd:

Trade: QQQ ($87.70) Bought to open the July 87 put for 2.40

Dan:  We wanted to lay out some similarities of the price action with high-flying Nasdaq stocks in early 2000 and that of 2014, specifically highlighting how some of the poster-children for the dotcom bubble in the late 90s had actually topped out well before the SPX did in March of 2000.  We chose to look at the Nasdaq as we feel that if the weakness continues in high growth/high valuation stocks/sectors, that we will eventually see a flow through into some large cap tech stocks that have benefitted from a rotation.  We did not look at the SPX as we feel the relative performance could persists, but that the tech and biotech weakness could flow into some of the large Nasdaq components like AAPL, GOOG & MSFT that make up 25% of the weight of the index.  Also implied vol in QQQ, although well off of the recent 52 week lows, is down about 25% from the recent highs making long premium directional plays fair to attractive.  On a move back to the prior lows in April we will look to spread the long puts and lower our break-even.

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Name That Trade – An Update to ADBE is Available!  Remind Me Later

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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.

 By Dan
TRADE: HLF ($59.20) Bought the May 2nd weekly 59/55/51 put fly for .60

Dan:  This position was profitable on more than one occasion, but with the stock hovering around my long put strike for most of the week I decided to let it ride and play for a downdraft into Friday’s close.  I chose the structure as I wanted to reduce the cost of owning the at the money put on such a short term basis, so in a sense I was risking what I was willing to lose as I suspected that it would likely come down to the wire.