Trading Diary: Oct 6th – Oct 10th

by Enis October 12, 2014 8:01 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 Oct 6th – Oct 10th:


Monday Oct 6th:

ACTION:  TAN ($38.26) Sold to close the Oct 39 Put at $1.40 for a $0.62 gain

Enis:  This trade was nearly worthless at one point, so when the solar ETF fell back to near 9 month support, I took the trade off for nearly a double.  While TAN continued to fall later in the week, making my exit look less than favorable, my exit on the trade was still probably the right decision considering that the long put position had less than 2 weeks to expiration with a decent probability of ending worthless on only one significant bounce.

Read here

Name That Trade – $TSLA:  Unveiling the D for All to See

Dan:  Heading into Thursday’s product event, it was our sense that options traders were not pricing a significant move one way or the other:

The weekly straddle (the put and the call of the same strike of the same expiration) in TSLA is now priced at around 4.5% (currently it costs about $11.25 for the Oct10th $262.50 straddle).    That actually looks somewhat cheap considering that TSLA has bounced more than $20 in just the past 3 trading sessions, in anticipation of the news, rather than any actual news.

Read more here

Tuesday Oct 7th:

TRADE:  FB ($77.40) Bought the Oct31st / Jan15 70 Put Calendar for $1.40

Enis:  Facebook has been one of the stalwart Nasdaq leaders in 2014, a hiding place of sorts for large cap growth fund managers.  However, the potential overhang from the new shares issued for the WhatsApp acquisition as well as the overall market weakness could create the first significant move lower in FB since the spring.  With that in mind, I bought a put calendar.  The main reason I chose a calendar as opposed to an outright put or put spread is that if FB did indeed make one more break higher, I wanted a position that would not lose too much premium in the interim if it took some time for my expected selloff to play out.

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Name That Trade – $CTXS:  GoToRetreating

Dan:  Another great example of a stock that has benefited from financial engineering despite any real improvement in their core business as competition intensifies:

CTXS checks must of the boxes when it comes to buzz words, from their desktop VIRTUALIZATION products, to their shift to higher growth offerings of SOFTWARE AS A SERVICE and the CLOUD.  So now you get it, they have all the right buzz words but have a high cost structure, low leverage ratio, decelerating sales and margins so why not manage earnings while cash is still really cheap.  It is our view that these are short term fixes, and without real sales growth, companies like CTXS could risk getting over-levered in an endeavor to demonstrate earnings growth.

Read more here

Wednesday Oct 8th:

Name That Trade – $DDD With No Bounce

Dan:  While we are in the camp that 3d printing technology will have no shortage of uses across dozens of different industries in the years to come, we have not been fans of the valuations placed on the stocks over the last year or so.  Aside from Stratasys Systems (SSYS), all of the stocks in the group have made lower lows from the May lows where many high fliers had bottomed.  Our charting in DDD pointed to the potential for lower lows, possibly down to the low $30s in the near future on a break of support at $40.  We concluded:

with the stock around $41.80., the November 42 straddle (long the put and the call) is offered at about $6, implying that the stock would need to be above $48, or below $36 to break-even if you bought that, or about 15%.  Given the stock’s dramatic declines from the highs, the short interest and the fact it is approaching key support in front of a potentially volatile event, the implied move of about 15% between now and Nov expiration may actually look pretty fair.

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Name That Trade – $ABBV:  BioBreakout

Enis:  ABBV has been on our radar for nearly a year, and we’ve had two successful trades in the stock from the long side in that period.  The technical setup is quite interesting with the $55 a crucial inflection point.  I laid out a possible trade idea in ABBV if the stock is able to stabilize near that support level in the coming weeks, in anticipation of renewed strength in ABBV shares when the market begins its next rally.

Read here

Thursday Oct 9th:

TRADE: UAL ($45.70) Bought Nov 45/35 Put Spread for 2.60

Dan:  While we think the probability of a widespread Ebola contagion in the U.S. is very low, we do see the potential for continued tape bombs relating to many industries that could see their businesses curtailed by the mere fear of a spread with just a few more publicized infections and or deaths.

UAL, one of the large U.S. carriers that has already had a scare aboard one of their flights, saw their stock pop 6% on Thursday’s opening after reporting some better than expected traffic results for September. We used that strength to lay out a short biased trade that would benefit from increased media coverage inciting fear among U.S. consumers.  We think the travel industry in the near term would face the largest disruption in business under this scenario.

Read here

Action: TWTR closing second half of long position at $55.50 for a $16.85 gain or about 44% gain since late July.

Dan:  Despite the stock bucking the broad market on a difficult day, making new multi-month highs, we have been getting increasingly worried that investors could pull the ripcord very quickly on some of the best performing but most expensive holdings on the slightest whiff of a sustained correction.  While our thesis towards TWTR has not changed, the risk / reward in the current market environment had.  This was a well timed sale with the stock down 9% on Friday. We will look to buyback shares or add bullish exposure on a move back to the mid to low $40s.

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ACTION:  CVX ($115) Bought back the Jan15 110 put for $3.10 to close, sold the Jan15 120 call at $2.04 to close, for a $1.06 debit, for a total loss of $2.01 on the position

Dan:  This was a costly trade as a result of poor entry and even poorer analysis.  Despite having months to expiration, given the increased volatility in the broad market, and the continued poor price action in energy stocks and related commodities, we thought it best to close this position.  The main reason is that we were naked short a put, and given the whippiness in the market we believe that contrarian plays should be made with defined risk, this trade structure did not offer that potential benefit.

Additionally Thursday’s trading highlighted one of the golden rules of trading, let your profits run and cut your losses quickly, which is what we did since late July in TWTR, but also in less than a week in CVX.

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Friday Oct 10th:

TRADE: MSFT ($45.60) Bought to Open Nov22nd 45 Put for 1.25

Dan: The bloodbath in semiconductor stocks on Friday was not to be dismissed.  The broad-based selling, and the violence in which stocks were sold down has the potential to be a seminal moment in this bull market.  While I was not in the camp of pressing shorts with stocks down 5% to 10% in one day, I did think it made sense to lay out a short in a related sector that has benefitted from similar sentiment about the PC and the Smartphone supply chain, Software. MSFT, only down 1/2 %  early on Friday seemed liked the perfect candidate:

it is my sense that MSFT shares have benefited from the sort of honeymoon period assigned to new CEO Satya Nadella, and some misperceptions of positive shifts to cloud-based products.  It is my sense that a broad tech sell off will not spare MSFT shares.

Read more here

Name That Trade – $HD:  DIY Earnings Growth

Enis:  Home Depot broke out to a new all-time high after a strong earnings report in mid-August.  Since that breakout, HD has seen hardly any selling pressure, and the stock actually touched a new all-time high last week even with the big move lower in the indices.  I laid out a possible bearish trade idea in HD that plays for at least a partial retracement of the major breakout over the past 2 months.

Read here