Trading Diary: Sept 22nd – Sept 26th

by Enis September 28, 2014 6:28 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 22nd – Sept 26th:          

Monday Sept 22nd:

Action:  Sell to close the CAT ($101) Nov 105/100 put spread at $2.90 for a $1.55 gain

Enis:  CAT sold off to the 200 day moving average last week.  That was our target for the put spread, so we took the trade off for more than a double.  CAT continued lower later in the week, but we don’t plan to get involved once again unless the stock moves back to the $105 level.  The commodity sector as a whole looks very weak, led to the downside by the coal stocks, as Chinese growth remains a serious issue, in addition to the general strength in the U.S. dollar.

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Tuesday Sept 23rd:

Action: Sell to Open Pandora ($25) Dec 20 Put to Open at .75
New Position:  Long Pandora ($25) Dec 25/20 Put Spread for 1.05

Dan:  After having the short leg of the bearish calendar roll off worthless, and the stock now at my long strike, with a spike in implied vol I am going to use the weakness in the stock to spread the puts that I am long.  I am now long a $5 wide, at the money put spread for abut 20% of the width of the spread with almost 3 months to expiration.  This was exactly how I had intended for this trade to go and would look to close for a gain if the stock were to move back to the low $20s, my original target, round-tripping the move higher from early May.

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TRADE: IBM ($191.70) Bought to Open Oct 192.50/182.50 Put Spread for 2.95

Dan:  Oracle’s recent weak results, coupled with IBM’s lack of organic earnings growth leads us to believe that investors will soon flee stocks like big blue with NO top line growth and buy back billions of dollars of shares to orchestrate earnings growth,

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Name That Trade:  $BA Humbug

Enis:  Boeing has traded in the $120-$130 range for much of the past 6 months.  As the stock approached the higher end of the range this week, we looked at potential bearish-biased trades.  Fundamentally, Boeing is dependent on the commercial airliner division for earnings growth given the weakness in the defense segments from stagnant U.S. government spending.  If global growth stalls, commercial airliner orders are likely one of the first areas of demand that will get hit.

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Wednesday Sept 24th:

Considering Our Options – Garmin ($GRMN)

Enis:  Garmin approached the crucial $50 support level mid-week.  Our put diagonal had appreciated as a result of the overall negative delta of the structure, but we wanted to hold on to the position given that the time decay of the position is firmly in our favor if GRMN remains between $48 and $52.  We will re-assess the position if it breaks either of those levels.

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Name That Trade – Chortals:  SINA & SOHU

Dan:  Despite our cautious view on growth prospects in China, the country’s stiff regulation on internet and media properties, and the reliability of Chinese company’s financial results, the valuations in recent web IPOs from the country on our shores make SINA and SOHU look very cheap.  We are considering long trades but need to better identify catalysts and get a better sense for growth prospects.

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Thursday Sept 25th:

TRADE – DIS ($88.79) Bought the April 85/75 put spread for 2.50

Enis:  Disney has been one of the mega-cap leaders in the market for the past 3 years.  The stock recently touched its 50 day moving average for the first time in several months, and looks vulnerable technically after an incredibly consistent uptrend.  Fundamentally, the issues for the NFL could affect ESPN, which is the source of nearly half of Disney’s overall profits.  Add it all up, and I bought a put spread in April with the thought that the stock is likely to see at least one bout of significant selling over the next 6 months.

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Name That Trade – $NKE Go Swoosh

Enis:  Ahead of NKE’s earnings event, we laid out one bearish and one bullish options structure for those who had a directional view.  We were neutral on the stock into the event, but implied volatility looked quite cheap considering that the stock was sitting right on the $80 inflection level, so both of our suggested trades were long premium ideas.

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Friday Sept 26th:

TRADE: NKE ($88.35) Buy to Open Oct 90/85/80 Put Butterfly for 1.75

Dan:  The stock’s breakout to new all time highs (up 11%) on better than expected results and futures orders is nothing short of impressive.  But it is our sense that a stock that has been in such a long base, as NKE has will need to consolidate recent gains before it is able to push that much higher.  We like the use of an in the money put fly playing for both continued pullback in options prices but also playing for the stock to come in a few bucks in the next few weeks.

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Name That Trade – $ESV Has Been Getting Drilled

Enis:  ESV has been taken to the woodshed along with the entire offshore drilling sector.  The stock is in a fundamentally better position than the competition as a result of a higher quality drill fleet and a stronger balance sheet, but the sector woes are likely to continue into 2015, so the stock could remain under pressure due to sector-wide issues.  The supply overhang should eventually lead to lower pricing and fewer rigs, but the transition could be painful.  Having said all that, ESV’s valuation reflects a good amount of the bad news, so we looked at a Jan16 risk reversal idea that could be a better way to get long exposure to the stock.

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