Trading Diary: Sept 8th – Sept 12th

by Enis September 14, 2014 10:37 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 Sept 8th – Sept 12th:          

Monday Sept 8th:

Name That Trade – KING:  Hard Candy

Dan: Given the stock’s very performance since its March IPO the stock is starting to screen as cheap to some, despite the company’s recent disappointing earnings guidance for the balance of the year. Over the next couple months there are a couple catalysts that traders will have their eyes on, first the IPO lock up expiration on Sept 22nd, and then the company’s Q3 earnings that should come in late October. We think it makes sense for those looking at bullish trades to wait and see just how much selling pressure results from the lock up.

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Name That Trade – AMZN:  Fiery Hole

Enis:  AMZN has been a major laggard in 2014, and the recent debacle with the Fire phone has hardly helped the sentiment around the stock.  We looked at a potential bearish trade with the stock at the crucial $340 technical level, though we ended up holding off on pulling the trigger.

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Tuesday Sept 9th:

Action: NKE ($81.70) Sell to Close Sept/Oct 80 Call Spread at 1.10

Dan:  This was a fairly disappointing trade where we got the direction and the thesis correct but the trade structure wrong. Before making problems worse we decided to close the position and not have it turn into a loser.

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TRADE – CAT ($108) Bought the Nov 105//100 put spread for 1.35

Enis:  The commodity sector was under particular pressure in the past week.  Caterpillar is one of the leaders among large cap stock performance in 2014, but the macro backdrop is quickly deteriorating for the mining and construction equipment maker.  The large buyback program this year has helped hold the stock up in the face of the bad news, but the stock’s inability to make a new high along with the weakening emerging market situation led us to a new bearish trade that captures the late October earnings report.

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Action:  GTAT (15.08)  Sell the Sept12th 16 put to close at 1.20 for a .71 offset against losses in the stock.
Remaining position:  Long GTAT with a $16.80 cost basis

Enis:  This was our biggest trading mistake in some time.  Our original plan on GTAT was a reasonable one, stopping our position out of losses below the $15.51 level as a result of our long put position against the long stock purchase.  However, we sold the put given the selloff in GTAT on the day of the Apple news as the stock neared support, when we should have just let the dust settle and trust our initial position plan.

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Wednesday Sept 10th:

Action: Sell to Close Half Position of TWTR Shares at $52.50 for a $13.85 or 36% gain

Dan:  The stock is up 36% from our purchase price in late July. It appears to us that just as sentiment was very poor in the stock for most of the year, and crescendoing into the company’s 6 month ipo lock up, it now seems that the sentiment has shifted a bit too almost a bit too overzealous.  We remain huge fans of the story, which is why we only sold a portion of the position, and will be buyers on a pullback to the mid $40s.

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Action:  Sold GTAT at $12.90 for a $3.90 loss vs. our adjusted $16.80 basis, or 23% in percentage terms

Enis:  As mentioned above, because we took off the put protection, we were left in a tough spot with a naked long stock position on a speculative stock.  We are not in the business of taking open ended, large downside risk, no matter our convictions, so we cut this long stock position for a loss.

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Name That Trade – LULU:  Lemon Drops

Dan:  Heading into the company’s fiscal Q2 print we wanted to highlight the controversial nature of the LULU story, and the potential for a large move on better than expected results.  We looked out to December for a hypothetical bullish trade into the earnings print as longer dated upside calls/spreads look relatively cheap for those looking to make a bullish contrarian bet.  Our conclusion was that outright bearish bets were a tough set up given the oversold nature of the stock and the very poor sentiment.

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Thursday Sept 11th:

TRADE: TSLA ($276) Buy Sept / Oct 265 Put calendar for 4.90

Dan:  We remain huge fans of the TSLA story, the products, the management and the future of the company. That being said, we like the set up playing for a near term consolidation back towards the recent breakout at $265.  We will keep this trade on a tight leash as the short leg (Sept) only provides the offset of near term decay, and we will not look to stay long an Oct put if the stock has not made a quick move this week back towards our strike ($265).

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Name That Trade – $SLV:  Metal Stand

Enis:  Silver has reached multiyear support after selling off steadily for the past 2 months.  While I don’t have a strong view on whether the commodity holds support here or falls to new lows, the low level of implied volatility looks quite cheap considering the technical situation.  We considered the December at-the-money straddle for a potential trade, though we’d rather focus on stocks at the moment.

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Friday Sept 12th:

TRADE:  Buy EBAY to open for $51.60

Dan:  At one point Friday morning, after first making new one month lows, the stock spiked nearly 5% of unsubstantiated rumors that Google was interested in taking a large stake in the underperforming e-commerce giant.  While EBAY’s core remains a unique property, it is logical to suspect that any sort of investor would specifically be interested in some sort of strategic partnership with EBAY’s Paypal unit in an effort to combat the emerging threat of Apple in electronic Payments. Despite EBAY denying that they are in talks with Google, it is our view that they should be, and there are no shortage of potential partners including MSFT, FB and even YHOO.

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TRADE:  XLU ($42.35) Bought to Open Oct 42/40 Put Spread for .60

Dan:  If the very recent rate move (higher) were to continue, it is our opinion that high yielding defensive sectors that have outperformed in 2014 could become vulnerable.  Utilities for example, as measured by the XLU, have doubled the performance of the SPX, up 15% vs 7.5% so far, but if were to see the yield on the 10 year move back to 3% where it was at the end of last year, the 3.5% dividend yield on the XLU could look a lot less attractive to some investors.  The trade that we put on plays for a quick 5% move over the next 5 weeks back to technical support, a level where the etf bottomed in August.

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Name That Trade – Speculating on $IYR

Enis:  IYR’s price action in the past week was a reflection of the rapid move higher in rates.  The last time rates had a large move higher was in May/June 2013, when IYR declined around 20% in just a month.  Put buyers were active in IYR, possibly anticipating a similar scenario, though it’s worth noting that the recent rise in rates is much smaller so far relative to the mid-2013 move.

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