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 Nov 17th – Nov 21st:
Monday Nov 17th:
Name That Trade – $MSFT: Surface to Air
Dan: Yeah yeah, cheap stock, huge cash balance and growing, reasonable dividend yield, but extended price action and sentiment. Options are relatively cheap, I personally don’t think much has changed fundamentally aside from sentiment, as the new CEO has had one heck of honeymoon period, I suspect the first acknowledged deceleration in growth of shift to Office365 could be the driver for investors to re-evaluate why they continue to own the stock after such a massive run. I would also add that the stock is not particularly cheap anymore, which could cause the company to give back more cash to shareholders in the form of a special dividend, which could be a catalyst in the near term.
Tuesday Nov 18th:
Name That Trade – $GS: Bank Shots
Dan: As GS appears to be bangin up against technical resistance I looked a couple options strategies that would either protect and existing long position over the balance of the year, or look to leverage an existing bullish view.
Name That Trade – $MON: Seeds of Doubt
Enis: Monsanto is the largest agricultural technology in the company, driving the genetically modified organism revolution over the last 20 years. However, along with that leadership position comes possible future regulatory risk if GMO crops are viewed as more dangerous by policymakers. While that’s a long-term view, we wanted to highlight the $120 technical level as well, and point out the possibility for volatility ahead of the early January earnings report.
Name That Trade – No $LOW Hanging Fruit
Dan: Heading into LOW’s Q3 results we looked a couple trades, one to play for a pull back and the other to fade what seemed like a high implied move into the event. As usual we highlighted the simple fact that it is a difficult proposition trading earnings events with short dated options, as you need to get a lot of things right to even be in the game, direction, magnitude of the move and timing.
Wednesday Nov 19th:
TRADE – Buy the GM ($32.10) June 33/38 call spread for 1.25
Enis: GM is one of the few large cap stocks whose valuation remains significantly below the broader market in the U.S. While 2014 was a poor year on many fronts for GM, 2015 is setting up much more favorably, especially with the light comparisons from this year. Moreover, cheap implied volatility means that the June call spread is a good risk/reward structure to take advantage of upside in the stock over the next 3-6 months.
Thursday Nov 20th:
TRADE – Buy WYNN ($180) Dec/Jan 180 put calendar for 2.10
Dan: Plain and simple, it appears that Macau, the Asian gambling mecca where WYNN gets more than two thirds of their sales is on a cold streak. We highlighted what appears to be continued sales decline in Macau into 2015, and what also looks like waning momentum and very poor relative performance of the stock. Options prices are surprisingly cheap, but we wanted to finance longer dated puts with the sale of shorter dated ones as we think the stock over the holiday period could remain rangebound with $180 serving as a bit of a magnet. The catalyt for the trade is to isolate Macau monthly sales data that should come in January prior to expiration.
Name That Trade – Shallow $HAL
Enis: Halliburton fell nearly 10% last week as a result of investors’ distaste for the terms of the BHI deal. The stock was already down around 30% from its July high before the deal announcement, mainly as a result of the steep drop in oil prices since that time. However, management painted a much more constructive picture for 2015 on the late October earnings conference call. In addition, the cheap valuation of HAL shares might attract new buyers who will be content with flat to slight sales and earnings growth in 2015.
Name That Trade – $GME: Play or Get Played
Dan: The set up in the stock and the options heading into the company’s Q3 results and Q4 guidance looked curious as the stock seemed unable to break out above key tehnical resistance at $45, while options prices just kept moving higher as it appeard a steady accumulation of puts. We laid out a few ways to play depending upon your directional inclination.
Friday Nov 21st:
Trade: XRT ($92.93) Buy Dec / March 90 Put Spread for 1.70
Dan: It is my fairly simple view that the impending holiday selling season will be the most promotional on record, despite what seems to be better employment data and lower oil prices. While promotions may cause sales records it is likely to take its toll on profits. My sense is that we once we get through Christmas, we could see a very solid Q1 or first half of 2015 hangover as it comes to retail sales. This trade structure allows for a consolidation of recent gains, which would help to finance the purchase of longer dated puts. If we get to December expiration and the etf is at or near $90 I will look to further finance the March puts through another calendar or merely turning into a vertical put spread in March.
Name That Trade – $BABA Booey
Dan: BABA has clearly claimed Mania status. Seems like there is a bit of a supply demand issue since the Sept 19th IPO as large capital pulls have been buying the shares non-stop, but this could change in the not to distant future. Sentiment on the stock seems to be off the hook, but this could change in the new year as there will be no shortage of supply coming from holders who have been locked up. In March there is a lock up expiration of 430 million shares, which is 60 million more than the company’s IPO. It is my sense that for those who remain bulls, it could make sense to use options to define risk with call spreads. This trade isolates the March period where shares come unlocked, but also offers downside protection below the recent support level, while offering a very wide range of profitability to the upside.
Note: There is a natural survivorship bias in our expiring trades. We take all of our winners off prior to expiry since we don’t take delivery of stock, which leaves only losing trades to report on expiry. You can see all of our trades reported on the Recent Trades page.
TRADE: UAL ($45.70) Bought Nov 45/35 Put Spread for 2.60
Trade: INTC ($31.22) Bought Nov 31/ 27 Put Spread for 1.05
TRADE: TSLA ($232.50) Buy to Open Nov 22nd Regular 225/200/175 Put Butterfly for 4.40