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 June 16th – June 20th:
Monday June 16th:
Name That Trade: It Aint Solar Day Today Is It? – $TAN, $SPWR, $SUNE
Dan: The price action in solar stocks, some breaking out to new all time highs (SUNE) and others threatening (SPWR) caused us to take a look at the stocks in the space given the very high short interest in most stocks, the bullish sentiment towards oil and what was shaping up to be a possible technical inflection point in laggards like SCTY.
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Tuesday June 17th:
Name That Trade – $ADBE: Install Now, Remind Me Later, Don’t Install
Enis: We laid out a couple of possible trade ideas in ADBE ahead of the earnings event after the close. We had considered a potential rangebound trade, but ADBE’s rally to near the $71 breakout level led us to pass on initiating a range trade on the stock. Following the event, ADBE did in fact break out above $71, closing the week around $72.50. We continue to be wary of trading ADBE given that the stock can move quite a bit on a small change in the company’s fundamentals since most of the potential earnings power is still quite uncertain and far in the future.
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Wednesday June 18th:
Update – VIX (11.74) short June 14 put settles at a 2.26 debit, for a total loss of 2.31 on the VIX structure
Enis: This was the first time that our favored VIX structure, selling a put and buying a call spread, settled for a loss. In hindsight (which is always omniscient of course), we wish we had taken this trade off on the mini selloff on June 12th, when we could have gotten out of the puts for around a 1.00 loss, as opposed to a 2.31 loss by Wednesday settlement. On prior Fed day settlements over the past year, the VIX has usually settled higher rather than lower, but this week’s settlement has us wary of relying on similar action in the future. Nevertheless, we still like the overall odds of using this VIX structure going forward, even if this particular trade ended up as a nasty loss, especially when there are multiple macro catalysts on the calendar.
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Name That Trade – $COH and $KORS: Put Protection in Front of Investor Meetings
Dan: With both companies holding or speaking to investors last week we wanted to take a look at the two very divergent sets of price action in the stocks over the last 6 months, with a seemingly zero sum game playing out. Prior to COH’s analyst day, an investor rolled up 7500 weekly puts that looked to be obvious protection against a long stock position, which came in very handy with the stock down 10% following the management’s presentation. KORS on the other hand did not drop a bomb but the stock seems a bit tired, failing to make a new high with the broad market. We think COH could be getting interesting on the long side, possibly closer to $30, while the KORS story might have run its course, and a re-test of $95 and a failure at that level could be a descent entry on the short side in the coming weeks/months.
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Name That Trade – $KO: Soda Pop?
Enis: KO was in the news after David Winters speculated that Warren Buffett and other investors might be planning to take Coca-Cola private. The speculation was not reflected in the options market, where implied volatility remained near multiyear lows, even as the stock approached a new 52 week high. On Thursday, KO did indeed break out to a new 52 week high, and is within 7% of a new all-time high as well.
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Thursday June 19th:
TRADE: SBUX ($77.09) Bought Jul19th 80/75/70 Put Butterfly for $2.15
Enis: With the overall market’s continued low volatility behavior, we initiated another range trade, this time in SBUX, which is a stock that has remained rangebound throughout 2014. Earnings in SBUX is not until after July 19th expiration, and the $75 has been a magnet for much of the past 5 months. This trade will start to appreciate more substantially after the 4th of July holiday.
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Friday June 20th:
Action: Sell to Open WYNN ($201.20) July 3rd (weekly) 190 put at .80
New Position: Long WYNN ($201.20) July 19th (regular) / July 3rd (weekly) 190 Put Spread for 1.55
Dan: Back on May 20th we initiated a bearish put calendar in WYNN (short June 190 and long July 190). Since then the stock is in the exact same spot it was then (around $ 201), after first rallying hard and rendering the trade a loser and then falling hard making the trade a winner. Now the position is essentially unchanged and we rolled the short leg that expired worthless on Friday’s close.
We continue to like the set up largely due to its weak relative strength to the broad market, and despite the late May push to $220, the rejection there, and the fact that it made a new low suggests that the stock is poised for a breakdown on the slightest bit of bad news. We sold the July 3rd weekly 190 put because it will NOT capture the June Macau data which should come the early in the second week of July which we see as a potentially negative catalyst after two consecutive months of poor revenues. And if we get to Thursday July 4th and the stock is lower I will look to once again spread the July 19th puts that I own into the following weeks data.
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TRADE – XHB ($32.00) Buy the July/September 31 put calendar for .70
Dan: It is our view that the Homebuilding etf and many of its retail and supplier components have underperformed the broad market ytd because investors in homebuilders and related stocks don’t seem to know what to do with them in an uncertain interest rate environment. The yield on the 10 year Treasury has been banging around between 3% in early January, and 2.5% in late May and now trying to get back to the midpoint as the Fed carefully walks a fine line of trying to talk up rates ever so slightly without causing the sort of panic seen in May/June 2013.
Either way, I have a dim view for housing this year. If the economy truly is improving as the Fed thinks, and the Taper comes to an end in the Fall, then rates should increase as traders will front run what will be an eventual bump to fed funds. This rate increase could strain the housing market. On the flip side, if the Fed’s forecast for continued gradual growth are wrong, and their Taper of bond buying was an incorrect strategy and rates decline, then it will because the economy is weaker than they thought.
The trade that we put on helps finance a bearish bet by selling shorter dated out of the money puts which will give us time and some prerogatives as far as spreading again either a calendar or a vertical as we get closer to July expiration.
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EXPIRED WORTHLESS:
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 and Enis
Action: Buy to close the BRK/B Mar 110 Put for $0.05, Buy to open the June 120/115 1×2 Put Spread for $0.08, total cost of $0.13
New Position: Long the BRK/B June 120/115/110 Put Fly for $1.73 cost basis (original $1.60 cost plus additional cost of $0.13 for today)
TRADE: ORCL ($40) Bought to Open June 40/37 Put Spread for 1.00
By CC and Enis
ACTION- Buy to open the NFLX ($370.50) Jun21st 365/325 1×3 put spread, and buy the Jun21st 285 puts 2x, all for $5.30 debit
New position is the Jun21st 365/325/285 put butterfly for $15.20 (currently worth $7.30)
TRADE: Buy to open the XLF ($21.87) Jun21st 22 Put for $0.52