Trading Diary: Sept 29th – Oct 3rd

by Enis October 5, 2014 9:30 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 29th – Oct 3rd:  

Monday Sept 29th:

ACTION – Sold to close the MA ($74.02) Oct18th 80/75/70 put fly at $2.51 for a $0.66 profit

Enis:  Mastercard reached the midpoint of our fly, and that is usually our spot to take off the in-the-money butterflies for a profit, especially when general market volatility starts to pick up.  This trade will experience the bulk of its decay on the final week of expiration, and we did not feel comfortable waiting until then so took the profit on the position.

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TRADE : PEP ($93) Bought to Open Jan15 92.50/82.50 Put Spread for 2.35

Dan:  PEP is a perfect example where investors are overlooking long term growth (or the lack there of) for short term yield.  The stock is expensive to its own historical valuation and many of its peers.  It is our view that heading into the new year investors will be a bit more discerning about what they own and for what reasons as we get ready to capping its six consecutive year of gains.

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Tuesday Sept 30th:

Action: Sell to Close EBAY shares at $56.75 for a $5.15 gain or about a 10% gain

Dan:  With the announcement from the company that they will do a tax free split of PayPal from their core auction business the stock saw a 7.5% pop.  We used the strength to exit our long stock position for a 10% gain in less than a month.  We would once again be inclined to get long again in the low $50s.

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Name That Trade – $GPRO:  We Can Be Heroes

Enis:  GPRO options were very active last week after the stock borrow dried up and the stock started moving parabolically to the upside.  We detailed the very severe impact of the high cost of stock borrow on both calls and puts in GPRO, and then laid out a couple of structures that might still offer decent risk/reward for those who are interested in playing for downside in GPRO from recent highs.

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Wednesday Oct 1st:

Trade: NLY ($10.92) Bought the Apr 11 Call for $0.42

Enis:  NLY has been on our radar throughout 2014 as a stock that is leveraged to long-term rates, but where options pricing has generally seemed to underprice the potential for volatility in the stock compared to the volatility we’ve seen in long-term rates.  With NLY’s fundamental valuation back down to an attractive level, I bought a longer-term call option on the stock to play for at least one substantial bounce over the next 6 months on the back of a catch-up in the stock to the move lower in rates, or simply valuation to move back to more normalized levels.

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Thursday Oct 2nd:

Action:  GRMN ($49.15) Sold to close the Jan15 52.5 / Oct 50 put diagonal at $3.74 for a $1.10 gain

Enis:  GRMN sold off below the critical $50 support level on Thursday.  Once the put diagonal was no longer short delta and the stock was below support, I decided to take the trade off for a decent profit.  The benefit of waiting would be to participate in more decay of the Oct 50 put, but at the risk of a big move in either direction in GRMN away from $50 over the next 2 weeks.  Given the high volume break of support, I preferred to take the gain than wait on the position.

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Name That Trade – Tell Me Where it $HTZ

Enis:  Hertz has seen aggressive selling since late August, falling nearly 30% on the back of a string of negative headlines, including Ford’s reduced profit guidance and Avis’s negative commentary last week.  The heavy activist lineup of investors in Hertz, including Carl Icahn, could make for an interesting push/pull setup in Hertz shares over the next few months, which might set up a possible short volatility play in the options market.

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Name That Trade:  Twick or Tweet – $TWTR

Dan:  From a technical and psychological standpoint, $50 is becoming an important support level for TWTR shares.  With short dated implied volatility rising with the price of the shares, we will look to possibly overwrite the remainder of our long position, possibly selling a Nov 65 call if the stock is in the high $50s prior to Q3 earnings that are expected at some point in early November.

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Friday Oct 3rd:

TRADE:  CVX ($117.75) Bought Jan15 110 / 120 Risk Reversal for 0.95

Dan:  Large integrated oil stocks are getting oversold in our opinion, nearing technical levels that could provide a very good entry for bullish positioning.  With the increase in implied volatility in CVX options, long premium directional trades appear expensive, so we wanted to define a wide range where we would get long on both the upside and the downside under the worst case scenario.  The risk reversal is geared to the long call strike as it is much closer to that of the short put strike, and we would possibly look to cover the short put and spread the long call on a quick move through the 120 call strike.

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TRADE:  XLE ($88.30) Bought the Nov 87 /92 / 97 Call Butterfly for $1.50

Dan:  Much like the CVX trade, we wanted to look for a structure that took advantage of the high levels of implied volatility.  In this case we wanted to play for a much quicker bounce that would benefit from a quick drop in implied vol.  The XLE would not have to move to much higher for this in the money call butterfly to be profitable.

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Name That Trade – $RSX:  Arrow Flop

Enis:  Russian stocks have been the cheapest on a valuation basis vs. other major global markets for nearly all of 2014.  The negative headlines have continued and the situation has worsened, but the distressed valuation reflects a lot of the risks.  Surprisingly, implied volatility is relatively cheap in RSX compared to when the etf was testing similar levels in March and April, so we considered a possible long call position to play for a bounce.

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