Trading Diary: August 18th – August 22nd

by Enis August 24, 2014 5:48 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 18th – August 22nd:  

Monday August 18th:

TRADE – Buying to Open GME for $40.10
TRADE:  GME ($40.10) Buy the Aug22nd 37.50 Put for $0.54

Enis:  GME is a stock that we have been watching for the past 6 months after the stock’s disappointing Q4 2013 report at the start of the year.  Valuation is quite depressed, and the company has actually been gaining share over the course of the latest console sales cycle.  We decided to enter a new long stock position ahead of the Q2 2014 earnings report later in the week.  However, even though we viewed the downside tail risk as a low probability situation, we wanted to protect the position given the catalyst later in the week, so we bought the weekly put along with the stock.

Read here

Tuesday August 19th:

TRADE – NKE ($78.60) Buy to open the Sept/Oct 80 call calendar for 1.00

Enis:  NKE has stalled out near $80 on several occasions in the past year.  Given that there is no catalyst in NKE until its earnings report, we decided on a call calendar that will benefit if NKE remains near the $80 breakout level until September expiry.  The earnings report is after Sept expiry, so the Oct 80 calls should remain well bid until that event.  The main risk to this trade is if NKE breaks out strongly above $80 or sells off sharply in the next 4 weeks.

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Wednesday August 20th:

Considering Our Options – I Think You Have My Stapler, $SPLS

Enis:  SPLS reported earnings that was slightly better than expected, though the underlying business trends remained relatively weak, and management did not express much confidence in the stabilization of the retail business, leaving room to possibly close additional stores in the restructuring plan.  SPLS sold off 3% after the earnings event, and sold off again on Thursday, but we have held on to the Jan15 12 call position because the fundamental valuation still implies to us that the situation is one of asymmetric risk/reward, and there remains 5 months until expiration.

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Name That Trade – $BTU Seams Ready?

Enis:  The coal sector has been one of the worst-performing sectors over the last 3 years.  BTU has also struggled mightily given the sector’s difficulties, but the stock has still under-performed the sector overall in 2014.  The Australian metallurgical coal division has weighed on BTU, but the stock is quite cheap on a fundamental basis.  Given that no rapid turnaround is expected, we might look at a long delta structures if BTU nears $15 in the coming weeks.

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Thursday August 21st:

TRADE – Bought to open the IWM ($115.00) Sept 117/110/103 Put fly for 1.85

Enis:  The Russell 2000 remains negative on the year even as the S&P 500 is up around 8%, a large performance differential that has continued to widen over the past 6 years.  Since the breadth among small cap stocks remains quite weak and IWM faces significant upside resistance between $115 and $120, we decided to put on a bearish in-the-money butterfly targeting a move back to the $110 support level.

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Name That Trade – $CRM:  Cumulo Nimble

Enis:  We laid out a couple of potential trade ideas ahead of the CRM earnings report.  We did not have a strong directional view in the short-term (though we remain skeptical on CRM as a long-term investment), but calendars looked relatively attractive since options were somewhat cheap in the 1-3 month maturities, but the implied move was close to in-line with the prior earnings events.

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Friday August 22nd:

Considering Our Options – $GME Long Stock & Protective Put

Enis:  GME ended up delivering its second straight strong quarter, though analysts were a bit disappointed that management did not raise guidance for the second half of 2014.  However, we remain bullish on the shares after the report, and are long the stock at a cost basis of $40.64 after the weekly $37.50 put expired worthless.  We might look at selling upside calls in GME if the stock rallies to the $45-$46 area.

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TRADE: USO ($34.85) Buy the Jan15 33/37 Risk Reversal for Even Money

Enis:  Oil has significantly weakened in the past couple of months despite the numerous geopolitical flare-ups that remain in the headlines at the moment.  WTI crude oil has neared a 1 year low, and Dan laid out a risk reversal that plays for a reversal higher from technical support.  The 33 put in USO is the break-even level on the downside, which corresponds to near multi-year lows in crude oil.

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