Trading Diary: May 5th – May 9th

by Dan May 11, 2014 5:37 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 May 5th – May 9th, but also:


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Monday May 5th:

Action: IBM ($190.34) Sold to Close May 190/185/180 Put Fly at 1.10 for a wash

Dan:  After closing a profitable bearish trade following IBM’s disappointing Q1 earnings in mid April we wanted to roll the bearish view out a bit as the results and commentary in our opinion should have caused the stock to retrace a bit more of the stock’s rally off of the February lows.  Well that wasn’t the case, and the stock quickly filled in the earnings gap to the upside, making our trade nearly worthless.  IBM’s 3.5% slide from last weeks highs, and back to the level where we bought the May Put Fly placed the trade back at break-even on Monday.  While my view on the stock has not really changed as it relates to their results, the price action, or rather, the buy interest that appears to be a continuation of the rotation out of high valuation and into more defensive tech as caused me to want to be out all together of the position and possibly wait for a better entry on the short side

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Name That Trade – XLF:  Bank Shot
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Name That Trade – WFM:  Gluten’s Law of Gravity

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Tuesday May 6th:

Action: TWTR ($35.55) Sold to Close May17th 40 / 30 1×2 Put Spread at 4.30 for a 2.20 gain

Dan:  With the stock in an apparent free-fall following the company’s IPO lock up we thought it made sense to close the trade and take the profit as we had no idea when the selling would dry up and worried a bit about the potential for a quick reversal.  In hindsight we were a bit too quick as the stock ended the day on the lows down 19%.  No one ever went broke taking a profit, but if I had it to do over again I would have likely closed half for more than a double and tried to be patient.Read hereNEW TRADE – NFLX ($338.30) Bought June21st 325 / 285 put spread for $9.90Enis:  NFLX has been on our radar ever since the start of the momentum selloff in early March.  Besides the stock’s weak technical situation, the fundamental story looks to be quickly deteriorating as well, particularly with regards to the regulations concerning net neutrality.  NFLX looks to be on the losing end of that battle, which could cost it dearly in the online video battle, which also happens to be getting more crowded by the day.  NFLX tested its 200 day moving average early last week, which we viewed as a good spot for an entry for a short biased trade.

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Action: Sold to Close SIRI at $3.23 for a .35 loss
Action: Sold to Close RENN at 3.30 for a .03 loss

Dan:  It is our belief that we are headed into an increased period of equity volatility and that owners of stocks will want to make sure they believe in the companies, the products, the strategies, and the managements of the stocks they own as the next few years may not be nearly as easy (in hindsight) for equity returns.  There were two “little” stocks that I have bought with low conviction (and plenty of caveats) which I decided to sell, both being losers as I can honestly say that the catalysts for which I bought them no longer stand.

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Trade: CRM ($52.70) Bought the May 23rd weekly 50 Put for 1.30

Dan:  The week before last I had flagged CRM in a chart of the day post as potential short candidate on a move back up to the downtrend line of the head and shoulders top formation the stock appears to be dangerously flirting with.  Well the stock did in fact bounce back to the downtrend and we merely bought a put in the May weekly expiration that will catch their May 29th earnings results.  As the weeklies did not have strikes below 50 listed at the time we were merely looking at out of the money puts at the neckline of $50 and if the stock got there we would have at least a double or look to spread by selling a lower strike put.

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Trade: Z ($105) Bought to open May 100/80/60 Put Fly for 3.50

Dan:  Zillow was a stock that we had previously flagged as trading as if “someone knows something”, meaning its relative strength to its internet service peers was downright quizzical given the fact the stock still trades at 20x sales.  Prior to the companies Q1 results it was our belief that given investors current disdain for high valuation internet stocks that there was very little the company could do or say that would cause the stock to go up from current levels after its results.  We wanted to make a defined risk bearish bet that the stock would not make a new high join its peers in making a downtrend of lower highs and lower lows from all time highs in the weeks to come.

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Wednesday May 7th:

Action:  CRM  ($49.50) Sold to Close May 23rd 50 Puts at 2.60 for a 1.30 profit, letting other half ride

Dan:   CRM quickly retraced the prior few day’s strength, once again breaking the neckline of the developing head and shoulders top at $50.  With the stock in a quick free fall we thought it made sense to take our cost of the the trade off of the table and sell half of the position and let the other half ride.

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Name That Trade – TSLA:  Electric Boogaloo
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Name That Trade – COST:  Exit the Triangle of Death

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Thursday May 8th:

Trade: COST ($114.50) Bought May30th weekly 113 put for  1.31

Dan:  We have 2 main gripes with COST, first the price action since the 2013 all time highs has been downright dreadful, making a series of lower highs and lower lows, and massively underperforming the XRT and the broad market.  Second, the stock is expensive at 25x earnings, especially when you consider its expected growth in the high single digits in both earnings and sales. With earnings coming up in a few weeks we thought we would take a shot on the short side with the stock back up at the downtrend line following better than expected April sales.  We like playing for a break below $110 if the company were to lower guidance later this month.

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Action:  BAC ($15.01) Sold to Close May17th 16 Puts at $0.99 for a $0.66 gain

Enis:  The BAC trade was more than a double after BAC announced the suspension of its buyback program as a result of an accounting error.  After that gap lower, we debated how best to handle the winning trade, since we viewed the news as quite negative for BAC in the short-term, especially when coupled with the stock’s technical break below the 200 day moving average.  When BAC moved below $15, we decided to set a trailing stop on the position at $15.01, and that level was hit on Thursday, so we took the position off.

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Friday May 9th:

TRADE:  Buy to open the XLF ($21.87) Jun21st 22 Put for $0.52

Enis:  The financials sector has underperformed the broader market since mid-March.  The sector’s weakness has become more pronounced since a weak earnings season, as well as the continued decline in long term rates.  With that in mind, we wanted to fade the recent strength in the sector etf.  The cheap level of implied volatility made an outright put purchase more attractive than a spread or calendar trade.

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TRADE: P ($22.50) Bought to open Sept 28/35 Call Spread for .95

Dan:  The Apple/Beats acquisition rumors got us thinking a bit about who’s next? The short list is pretty obvious, and with Pandora’s recent 45% slide from the recent all time highs, while still expensive on a price to sales basis, it is far less though than many of its peers (YELP 10x forward vs Pandora at 5x).  While we have no clue whether or not the Beats deal happens, we expect that if it does that many of Apple’s competitors will scramble a bit to gain market share and Pandora will likely be tops of the lists of most acquirers given its strong brand and 76 million registered users.  We wanted to spend the smallest amount of premium that could given us the largest potential reward in the event of a takeover so we looked up and out, meaning higher out of the money strikes and out more than a few months to give the speculative trade some time to play out.

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Name That Trade – Twitter (TWTR):  Catching a Falling Whale
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