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 28th to August 1st:
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Monday July 28th:
Trade: MAS ($20.38) Bought Aug/ Oct 20 Put Spread for .50
Dan: We think there is another leg lower in Housing stocks, more likely closer to the end of the Fed’s Taper as opposed to now because we’ve already seen a fairly sharp decline recently that could discount bad news in the short run. In MAS, heading into their Q2 print, I wanted to sell the implied move, playing for a near term consolidation, and look to own some longer dated near the money puts. Put calendar’s were the way to play. I concluded: This is not a particularly high risk/ high reward trade, but it takes advantage of the elevated levels of implied vol and fits my thesis on the sector.
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Tuesday July 29th:
Name That Trade – $XLU: Breaking Down Utilities
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Name That Trade – $GLW: Gorrilla Smacked
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Name That Trade: $UPS’s Left Turn
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TRADE – Buying to Open TWTR at $38.65
Dan: I did something I don’t normally do on the site, Into an event I bought stock rather than a trade that offered a defined risk. Here was my thesis:
I think Twitter is a very unique web property, and its current $23 billion market cap does NOT reflect its scarcity value. What do I mean by this? Well, the $19 billion price tag Facebook paid for WhatsApp is exhibit A, most large internet companies have a some obvious holes when it comes to social media, like Google, MSFT & Yahoo. What Twitter is really good at is real time search, and Google who is the king of web search has a realtime search problem, not to mention a fairly horrible social media offering in Google Plus. Before this bull market is over I suspect we will see a bidding war for Twitter due to its scarcity value and social relevance, NOT for what they have or have not been able to demonstrate as it relates to ad revenues, user growth or engagement, but for the potential!
So if the stock is down in line with the implied move of 11% or greater I am fully prepared to double my position as nothing they do or say tonight changes my longer term thesis, so I am going into the trade fully prepared with that possibility.
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Wednesday July 30th:
Trade: UPS ($99.45) Bought to Open Sept 100/95/90 Put Butterfly for 1.45
Dan: Following UPS disappointing Q2 results, we outlined a bearish thesis, primarily rooted in their fundamental under-performance relative to FDX, but what was also a deteriorating technical picture. The stock’s break of the 200 day moving avg, and the uptrend gave us conviction to press the weakness caused by the earnings miss, but we are going to keep this trade on a tight leash as a series of closes above $100 would cause us to rethink the trade and probably look to cut our loses.
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Thursday July 31st:
Considering Our Options – Herbalife ($HLF) Aug Put ButterFly
With HLF finally breaking through our long put strike (we are long from April – HLF ($60) August 55/40/25 put fly for 2.50) less than 3 weeks to Aug expiration, we wanted to give some guidance on how we would trade the position in the near term.
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Considering Our Options – Autodesk ($ADSK)
Enis: with the stock’s recent decline, the trade has become a winner, we wanted to lay out what we are considering and how we will trade as we get closer to August Expiration.
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Friday August 1st:
Name That Trade – $PCLN: Name Your Price
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Trade: QQQ ($94.75) Bought Oct 95/85 Put Spread for 2.40
Dan: We are not fans of the fact that fewer and fewer stocks in the Nasdaq 100 are doing more and more of the heavy lifting. Put another way, the index’s breadth stinks, and it seems that Apple at 13.5% of the index is right back at levels (from a sentiment point of view and price) seen in Sept 2012 prior to the iPhone 5 launch and we worry of a sort of sell the news after iPhone 6 release and the implications on large cap tech.
From an implied vol standpoint, despite thursday’s more than 2% decline, and the subsequent vol spike, the price of options in the QQQ remains relatively low considering the pick up in realized vol (how much the underlying is moving). If realized were to reach levels similar to April and May, implied vol at current levels would be a very attractive buy
We added to our short position with the October put spread as we want to give our thesis more time to play out, but we will look to close our August puts on the next big down day.
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