Trade Update – $PCLN: Closing Aug Call Calendar for A Wash

by CC July 16, 2014 12:41 pm • Commentary

A couple of weeks ago we entered a mildly bullish trade in PCLN that looked to own upside calls that caught its next earnings report but sold the weekly same strike that expired just before to offset decay in the event it went sideways for a while. Here was the original trade and rationale:

New Trade: PCLN ($1247) Buy Aug 1st weekly / Aug regular 1300 Call Spread for 17.00

-Sell to Open Aug 1st weekly 1300 call at 13.50

-Buy to Open Aug Regular 1300 call for 30.50


Any big moves like a breakout above 1300 are unlikely to happen before the earnings report in early August but a drift higher towards that point is possible. The vol difference between July and August options is fairly steep (in the wrong way), so the sale side of the calendar needs to be as close to earnings as possible in order to get the most from that sale.

Since then, the stock has gone down slightly:

Screen Shot 2014-07-16 at 10.23.18 AM
3 Month PCLN from LiveVol Pro

With the market making news highs we would have assumed PCLN would have drifted higher but that hasn’t been the case. The trade can be taken off here for a wash and we’re going to do that and have another look closer to the report:

ACTION – Sell to close the PCLN (1228) Sell to close the Aug1/Aug Regular 1300 call calendar at 17.25

Note: the Aug1st calls are quite wide and should not be closed on the ask, slightly past mid market should be filled.  So when trading a spread like this with very wide bid/ask it makes sense to try a few different limits until you get filled.