Trading Diary: August 4th – August 8th

by Enis August 10, 2014 10:33 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 August 4th – August 8th:  

Monday August 4th:

Action: HLF ($50.75)  Sell to close the August 55/40/25 put fly at 4.50 for a 2.00 profit

Dan:  This was a long hard fought trade, and the closer we get to August expiration, the binary the in the money aspect of our trade structure happens to be.  We thought it decent risk management to at least close some of this position but clearly recognize the urge to stick with the bearish view as the stock has barely witnessed an uptick since reporting a disappointing Q2 in  late July.  A few weeks ago the position was a total loser, so we thought it prudent to book the gains, with an eye towards looking out and down on a rally back towards $60.   We think this story is toast and it is just a matter of time, but the time is the most difficult input in the trade thesis to get right as the timing of when and how the Feds take a closer look into just how HLF makes their sales is something impossible to handicap.  I would also add that it appears that some in Washington have very little interest in being perceived as helping a brash hedge fund billionaire (Ackman) make another billion, which is why this is the sort of stock that you do not want to press when down, but work into on a short squeeze.

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Considering Our Options – $VIX:  The More You Know…

Enis:  The VIX moved into the mid-to-high teens in the past couple of weeks, and has sustained that area for the first time since mid-April.  Since our VIX trade structure is in September, we won’t see the trade appreciate too much until August expiration rolls off, or the VIX really spikes (meaning higher than 20).  Having said that, the simple fact that realized volatility in the S&P 500 index has also moved higher (10 day realized volatility now around 13) is a positive for our VIX trade as it makes it less likely that Sept VIX futures will snap back lower on the first period of calm in the market.

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Tuesday August 5th:

Action: CSCO ($24.95) Sold to Close Sept 25/27 Call Spread at .60 for a .04 gain.

Dan:  With the position having gone from more than a double to basically unchanged we thought it prudent to close prior to next week’s earnings report as we will take a closer look as too structures and reevaluate our thesis given the stock’s inability to breakout and hold above the $26 technical resistance.

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Name That Trade – $XOP:  Passing Gas

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Wednesday August 6th:

Considering Our Options – Just $WYNN Baby

Enis:  We discussed our potential options in the WYNN trade with expiration only 8 trading days away, and the stock still flirting with the $200 level.  Of course, the stock’s selloff on Thursday led us to take off half of the position later in the week.

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Thursday August 7th:

Action: WYNN ($194.60) Sold to Close Half position of Aug 200 puts at 8.20 for a 2.70 gain

Dan:  Just a week ago this trade look to be in a bit of distress with the stock back up near the downtrend, but well above our long put strike.  IN just about a week, the stock sold off 12% making our trade profitable with a little more than a week to expiration, and it would be foolish not take some money off of the table given how oversold the stock is on a short term basis.  Next week will look to be quick on the balance of this short biased position as our break-even on the balance on Friday Aug 15th’s close will be $194.50, which also happens to be a little bit of technical support.

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Considering Our Options – $MAS Put Calendar

Enis:  While MAS ended higher on the week, the stock has remained below its earnings day close for the month of August.  The put calendar that we traded prior to earnings is increasingly acting like a simple long Oct 20 put position, since the Aug 20 put that we are short has lost most of its value.  If and when that Aug 20 put expires worthless, we might look to sell a different MAS strike to take in some more premium on this position.

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Considering Our Options – Long $GG In Investment Portfolio

Enis:  We have owned GG since late March, and the stock has traded in a very tight range between $27 and $29 for the most part since mid-June.  Our original fundamental thesis for owning GG still stands (though the recent weakness in gold and silver is a slight cause for concern), and it has been encouraging that the stock has consolidated near the highs even as the metals themselves have sold off.  We anticipate a breakout in the coming weeks, though we’ll take the position off for a smaller gain if it breaks back below $27.

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Friday August 8th:

Trade: AT&T Bought stock at $34.28

Dan:   While the fundamentals of the stock remain in transition as the company is set to digest their largest acquisition ever in an attempt to make over their entire business model, the stock’s oversold condition coupled with the 5% dividend yield could cause investors to seek out relatively safe bond proxies in an environment where bond yields just wont’t rise.  We will look to add additional yield on a bounce by overwriting and selling a longer dated call (possibly Jan) on a bounce towards $36.

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