Trading Diary: July 14th to July 18th

by Dan July 20, 2014 7:36 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 July 14th – July 18th:

Monday July 14th:

Name That Trade – $KORS Brewing?

Dan:  After taking a closer look at what appears to be a growing trend of single stock breakdowns in the consumer/retail space, the price action in KORS caught my eye, as it approached key technical support and displayed poor relative strength to the broad market.  We laid out a couple ways that we would be inclined to play for a breakdown in the near term heading into their fiscal Q1 results in the coming weeks.

Read here

Name That Trade – $GDX, $GLD:  That’s Gold Jerry

Dan:  Gold and Gold miners had a pretty poor start to the week, and after spotting some large bullish activity in the GDX we decided to take a closer look at the technicals and the volatility set up in the space.  We concluded that both the GLD and the GDX could remain in the well defined ytd range and that in the near term a trade in the GLD that plays for a consolidation isolating the 120/130 range could be far more attractive than playing for a breakout or breakdown.

Read here

Tuesday July 15th:

TRADE – IBB ($253.30) Bought Sept 245/225 Put Spread for $4.73

Enis:  We have been watching the biotech industry for the past couple of months as it looks like the sector’s massive rally of the past 3 years has potentially run out of steam.  From both a technical and a fundamental perspective, the risks look to be skewed to the downside, particularly since the overall strength in the broader market has failed to lead to aggressive buying in the biotech sector.  In fact, even with VRTX’s huge drug success, and GILD’s breakout to new all-time highs, IBB remained well below its March highs.  We put on a Sept put spread to play for a move back down to near the April lows.

Read here

Name That Trade – $GS:  Vampire Lid?

Enis:  GS reported earnings that were stronger-than-expected, and the stock rallied along with the rest of the financials sector this week.  However, the strong earnings report was more based on the investment banking and proprietary investing businesses, while the traditional leader, the trading business, remained weak.  Given the continued subdued outlook for trading in the second half of the year, and GS trading around the important resistance area near $170, we looked at a potential bearish trade to play for a move back into the middle of its 3 month range.  We held off since the financials sector had better reports overall than we expected, but might still pull the trigger in the coming weeks.

Read here

Name That Trade – $DIS:  It’s a Vol World After All

Dan:   There was some large closing call activity that caught our eye:

when the stock was $86 an investor sold 50,000 of the Jan15 95 calls at 1.44 to close.  What’s interesting about this is that these calls were bought to open about 40 days ago (on June 4th) for 1.66 when the stock was $84.

We concluded that in the near term short premium trades could look attractive given the stock’s outperformance and what could be slowing upward momentum plus the stock’s recent uptick in implied volatility.

Read here

Wednesday July 16th:

ACTION – Sold to close TWTR ($38.85) Sept 40/50 call spread at 2.10

Dan:  After having nearly a double after entering the position on the stock’s run from $37 to $43, and then back to $37 we decided to make a risk management decision and close the position for what we played as the stock’s weak relative performance of late could signal investors’ growing concern heading into the company’s second earnings report as a public company on July 29th.  We remain intrigued by the TWTR story, but are far more inclined to be take bullish positions when the sentiment is poor, rather than Euphoric as it was late last month, or mediocre as it is now.  We would look for a re-entry back in the low $30s.

Read here

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

Dan:  This one just didn’t have it.  We thought choosing a high quality internet name at a reasonable valuation to its growth was a good candidate to play for a bounce to the prior highs.  Well, the stock never got going and the poor relative strength to internet peers made us want to close the position for what we paid rather than sit and wait for their earnings event (which the trade was originally designed to do).  Despite the stock declining close to $20 from the time that we put it on, the position was still break-even, as the trade did what it was supposed to do, the short dated call that we were short helping to offset the longer dated call that we were long for earnings.  Our concern was that the call strike was increasingly looking too far out of the money leaving us essentially long a lotto ticket for earnings.

Read here

Thursday July 17th:

Action: Sell to Close TLT ($114.50) Sept 112 Put at 1.10 for a .90 loss

Dan:  I was wrong on this one, wrong in my thesis, and wrong on my entry.  In late May when we played for a pullback in bonds we did so as the TLT approached very important technical resistance at $115, our entry at $113 a couple weeks ago was the margin of error in this trade, meaning with the etf approaching $115 again on the upside was now at an inflection point but our trade had lost almost half its value with only a little more than a 1% move against us.  The real problem was the entry so I decided to cut my losses and re-evaluate the thesis.

Read here

Name That Trade – $IBM:  A Couple of Ways to Play

Dan:  Heading into the company’s Q2 report we had a less than optimistic outlook the company’s results.  Given the stock’s recent 7% rally we felt that expectations were high heading into the print and the slightest bit of bad news could send the stock down at least in line with the implied move of about 4%.  That being said we did not see an obvious set up that gave us enough conviction to actually trade the event.  We laid out 2 ways that we would be inclined to play, one bullish and one bearish. We obviously leaned bullish, but we do our best to avoid binary trades around earnings, especially with mild conviction.

Read here

Friday July 18th:

Action – Sell to Close EBAY ($50.80) July 50/52.5 call spread at .80 for a .20 loss

Dan:  With ours to expiration we had a decision to make whether to let our in the money call spread run, or cut our loses for the small loss that we had at the time.  The trade was a bit of a coin flip, meaning that it was really a market call as the break-even on our trade was $51.05 and your guess was as good as mine where the stock would be at 4pm.  So after having a very nice entry on the calls when the stock was below $49, the trade demonstrates how difficult it can be to make money in a low vol environment with long premium directional trades as you need to get direction, magnitude and most of all timing correct.

Read here

Action:  SBUX ($77.83) Sell to close the Jul19th 80 put at $2.17 for a $0.02 gain

Enis:  This trade turned out to be essentially a wash, though that’s a decent result considering that SBUX essentially rallied right after we initiated the trade when SBUX was trading around $77.  By Friday’s expiry, the intrinsic value of the position was near our cost base, even though SBUX was trading about 1% higher than where we originally bought the put fly, which is a demonstration of why we generally prefer in-the-money flies versus outright options or spreads in a low vol environment.  We are still of the view that SBUX is more likely to go lower than higher over the next 3 months, so we might look at a new trade in the next couple of weeks (perhaps after earnings).Read here

ACTION – XHB ($30.95) sell to close the July/Sept 31 put calendar at .97 for a .27 profit

Dan:  In the near term it appeared that the XHB was getting a tad oversold and while the trade did almost exactly what we hoped, closing at or near $31 on July expiration, we did not love the prospects of spreading the Sept puts at current levels, thus playing for more downside from current levels. On a bounce back towards $33 we would look at verticals, possibly butterflies.

Read here

Hypothetical Bullish Trade: FB ($68) Aug 65/72.50/80 Call Butterfly for 2.25

Dan:  For those looking to play FB’s quarter from the long side, targeting a re-test of the prior highs at $72.50, we like in the money call butterlies as a fairly cheap (in vol terms) way to play with defined risk.  This is not a trade that we are doing at the moment as we lack conviction on direction, but we will look closer at the trade once we complete our official preview of the event.  Stay Tuned!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

TRADE: GRMN ($54.60) Bought May / July 50 Put calendar for $0.74
 By Dan
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
 By Dan

Trade: GE ($27.12) Bought to open the July 28 calls for .16 By Dan

TRADE: INTC ($29.89) Bought July 11th/ July 18th 29 Puts spread for .14