Trading Diary: May 27th – May 30th

by Dan June 1, 2014 8:42 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 27th – May 30th:

Monday May 26th:

Memorial Day Holiday

Tuesday May 27th:

Name That Trade – IBM:  Seeing Red
HYPOTHETICAL TRADE – Buy the June/July 190 call calendar for 1.70

Dan: IBM remains fairly disconnected from the broad market, down 8% on the year vs the SPX up 4%.  With the stock straddling important near term support at $185 we thought it made sense to look at the set up and possibly layout a range-trade.  We wanted to wait and see how the stock acted at support before gaining the conviction to execute a trade.  By the end of the week the stock closed below $185 and continues to show relative weakness, we will likely now wait to see how the stock acts if and when it gets to $180 and possibly look at the $185 strike from the lower levels.

Read here

Considering Our Options – SINA

Read here

Wednesday May 28th:

Trade: TLT ($114.78) Buy June 112/July 115 Put Spread for 1.93

Dan:  Over the last few years I have made my share of trading mistakes, none more obvious than refusing to take heed of the old market saying of “Don’t Fight the Fed”.  As we get closer to the back half of the year, and what could amount to the balance of the Fed’s Taper of the $85 billion in monthly bond purchases, it seems almost counter intuitive that expecting higher rates, on the back of the Fed’s view of a strengthening economy and that being short U.S. Treasuries would be “fighting the fed”.  We took a small crack at short bonds via long TLT puts, but with an eye towards financing the premium by a selling shorter dated lower strike put to offset some of the decay.

Read here

Considering Our Options – Costco (COST)

Read here

Thursday May 29th:

Name That Trade – MCP:  Dancing with Moly
HYPOTHETICAL TRADE: MCP $2.90 In Lieu of Buying Stock, Buy Jan 2016 $2/$4 Risk Reversal for even money

Dan:  This is not a company that we know well, and frankly it is obviously a fairly distressed situation, but our Fast Money friend Regis Philbin has been buying it the whole way down for the last couple years and I wanted to offer an alternative trade structure with options that doesn’t tie up nearly as much capital for those averaging down, but also offers potential asymmetric returns with a lower break-even on the downside.

Read here

Name That Trade – $GME:  LameStop

Enis:  GME is still down more than 20% so far in 2014 after a weaker-than-expected holiday sales season.  However, there were some signs for optimism in the most recent earnings report, as GME might be gaining market share in the gaming market at the same time that physical game sales are holding up vs. the digital market due to the incentives given by the console makers.  Sentiment is quite negative on GME, and we were bearish on the stock last fall.  At this juncture though, with signs of an improving business but the stock price still stagnant with elevated short interest, we are on the prowl for a good structure for a bullish structure.

Read here

Friday May 30th:

Name That Trade $AAPL:  1 Infinite Droop?

Dan:  We took a close look at the trading patterns around WWDC for Apple’s stock over the last four years, and the only thing that really stood out in 20 day trading period in and around WWDC was the price action on the day of the event.  IN all of the last 4 years, during either Steve Jobs or Tim Cook’s keynote address, the stock was at the highs of the day during the speech, but then when the CEO left the stage and the keynote concluded the stock dropped hard closing at or near the lows of the day, down 2-3% from the highs.

Read here

Watch here:

TRADE: CRM ($52.80) Bought to Open August 50 Puts for 2.00

Dan:  The stock has been very volatile over the last month, trading in a fairly wide range, but one far closer to the recent lows than the all time highs made in March.  The stock continues to display poor relative strength to the broad market and many large cap tech peers and lastly, options prices are fairly cheap relative to how much the stock has been moving.  We like the idea of playing for a clean break of $50 over the next couple months and we will look to reduce our break-even by selling a lower strike put if the stock quickly moves toward our long strike.  We firmly remain in the camp to short relative weakness at resistance as opposed to trying to pick a top in strength.

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

Dan:  This trade was a bit disappointing given COST missing on the Street’s earnings and sales estimates for the 4th consecutive quarter, a fairly badly looking technical set up as a classic head and shoulders top and a valuation gap between it and its peers that does not make sense despite higher margins but slow growth.  We risked 1% of the underlying stock price to play for a break below the important support on a miss and guide down.  We got the miss, but to be honest it wasn’t atrocious, and investors appear to not mind paying 25x for single digit growth, for now.  We will continue to be persistent on this name as we think the second half of the year could see the unwinding on more cult stock stories.

Read my discussion on The Death of the Cult Stock from Thursday, here.