Trading Diary: May 12th – May 16th

by Dan May 18, 2014 8:10 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 12th – May 16th:  

Monday May 12th:

Considering Our Options – Zillow (Z) Put Fly
Read here

Tuesday May 13th:

TRADE – Sell the VIX (12.10) June 14 put and buy the June 15/19 call spread for 5c

Enis:  We had been watching the June VIX future for the past month, waiting patiently for a good entry level for a sell put / buy call spread structure.  On Tuesday, the June VIX future declined below 15, and we decided to pull the trigger on the structure for a 5 cent debit (was at even money briefly in the morning).  We had been watching June expiration specifically because the VIX expiration for June will be on the morning of the June FOMC meeting, which makes us more comfortable holding the short June 14 put, since the expiration on the morning of the meeting is likely to be more elevated than normal with the event still on tap.

Read here

Name That Trade:  Can I Get a Little YELP Here?

Dan:  The stock’s bounce off of the recent lows looks and feels anemic. We charted the recent price action, and its failure to re-take $60 on the upside, and remaining very much in its epic downtrend from the March highs.  We would look to short on a re-test and failure at technical resistance around $60.

Read here

Wednesday May 14th:

Name That Trade:  FireEye in the Hole

Dan: Given the stock’s 70% decline from the recent highs, and the upcoming 91 million share lock-up expiration, one trader’s bullish short term bet in the options market caught our attention.  Despite the stock being very oversold we are hard pressed to see how it makes a ton of sense being long into the lock-up on May 21st, but we would be inclined to play for a reversal from lower lows if in fact the stock got hit hard.

Read here
Considering Our Options – Costco (COST)
Read here

Thursday May 15th:

Action:  Buy to close the ABBV ($52.90) August 45 Put for $0.45.  Remain Long the August 52.5/60 Call Spread, now for a $0.35 debit

Enis:  ABBV was our first position in the investment portfolio to start 2014.  The stock continues to trade near an all-time high, but has been unable to break out above the $54 resistance level in the past few months.  With the stock near resistance once again, we decided to take off the short put position against the long call spread, and leave the call spread on its own, since the risk/reward of holding a 0.45 short put position did not seem worth it.  We left the long call spread position with the view that we have limited premium at risk, but a good amount of potential upside if ABBV breaks out to a new all-time high in the coming months.

Read here

Action: Z ($98) Sold May 100/90 Put Spread at 2.50  (selling May 100 Put to close and buying May 90 put to open) Locking in 1.00 loss
New Position: Z ($98) Long May 90/80/60 Put Fly for 1.00 that is my max loss

Dan:  What we initially liked about this trade was the sort of asymmetric risk of owning a short dated put fly into an event where we risked only 3% of the underlying stock price to possibly make up to 4.5x that to the downside if the stock was down between 10% and 40%.  We had a double almost immediately with the stock down 10% in the first day since initiation, but the wild swings in the stock ended up not being that friendly to our pnl on the position.  With a little more than a day to expiration, we decided to cut our losses at about 30% of the position risk as the stock displayed little attributes of a breakdown.  We have said on more than one occasion of late that the stock’s 37% short interest makes it trade like few other high valuation internet stocks, and it trades like someone “knows something”.  As CC likes to say “we don’t get any extra points for degree of difficulty” so we will look for our overpriced short targets, as this one plays by its own rules.

Read here

Name That Trade:  WYNN’s chart is “a death trap, it’s a suicide rap” … you know the rest

Dan: While we have definitely been in the mindset of shorting high valuation stocks in the last couple months, we have been very hesitant to do so when said stocks are short term oversold, preferring to do so when they bounce back to the recent downtrends from the recent highs.  WYNN is no different.  We see little reason to own the stock given its current growth projections relative to its valuation, its dependency on Macau, which given LVS’s recent results could be slowing, and the technical set up that looks less than healthy.  This one is on our radar, and at a failure at its downtrend, a few % from here we will look to make a defined risk short.

Read here

Friday May 16th:

Name That Trade – CBS:  How I’d Bet it Hovers
Read here
Name That Trade – SPY:  It’s a 1-8-7 for Another Market Drop

Dan:  On many occasions since the Nasdaq and Russell tops in the last couple months we have remarked that the S&P 500’s price action resembles “flight to quality” status and we have seen little reason to try and pick a top when it has been a perfectly good strategy to merely short weakness on a bounce.  We wanted to lay out the attractiveness of SPY put options for those looking to protect a portfolio of large cap stocks int he near term, or merely make a directional bet that the “last man standing” will follow its higher priced and smaller cap brethren sooner than later and retest support, or possibly its 200 day moving average which it has not done since November 2012.  While we were not inclined to pull the trigger on this contrarian trade, we would likely do so if the index fails at an attempt of new highs this week, and if the Russell 2000 were to make a new low. Something has to give.

Read here


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 Enis and Dan
TRADE:  IYT ($132.35) Bought the May 130/125 Put Spread for 1.20
 By Dan, Enis, and CC
TRADE:  Buy to open the EWG ($31.29) May 31 puts for .60
 By Dan
TRADE: GDX ($24.65) Bought May 25/27.50 Call Spread for .70