Trading Diary: Dec 1st – Dec 5th

by Dan December 7, 2014 7:49 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 Dec 1st – Dec 5th:  


Monday Dec 1st:

Name That Trade – AAPL Cyber Monday Flash Crash

Dan:  Shortly after the open AAPL shares fropped 6% in straightline in a matter of minutes, losing $40 billion in market capitalization, before making back half the losses to close down 3%.  The near term spike in implied offered a fairly attractive opportunity for those inclined to overwrite long stock by selling covered calls.

While investors routinely point to cheap valuation on earnings multiples, the stock is reaching some fairly high levels vs sales:

The seven year chart below shows AAPL’s price to sales multiple vs the stock’s price, clearly showing approaching a fairly elevated level for the metric:

AAPL 7 year chart of price  (yellow) vs price to sales (pink) from Bloomberg

In some it is our view that investors remain complacent on many levels:

All that analysis has little to do with this morning’s volatility, aside from the fact that AAPL is a very crowded trade where investors seem quite complacent with the excitement about existing product cycles.  From where I sit, I found all of the talk over the last few weeks of a path to $1 trillion in market cap a bit nauseating without outlining a path to growing sales by 30% in that same time period, despite expected growth of 10% for years following the current one.

Read here

Tuesday Dec 2nd:

New Trade: ALTR ($37.10) Buy the Jan 38/35/32 Put Fly for .90

Dan:  ALTR’s underperformance, and what appears to be waning momentum and increasingly poor technical set up led me to play for a reversion to the mid point of the recent range.

Read here

Wednesday Dec 3rd:

Name That Trade – ANF: Losing its Shirt

Dan:  I am not sure whats worse when looking at ANF, the company’s fundamental’s or the stock’s technicals.  For those who are inclined to play for an oversold bounce into the new year January call butteflies look like an attractive stock alternative.  On the flip side, the stock has broken below massive long term support, which could now serve as resistance with the next peice of bad news in the stock serving as the death blow.  We outlined a put calendar that would help finance the purchase of longer dated puts.

Read here

ACTION: Sold to close the QCOM ($74) Dec 70/75 Call 1×2 at $2.80 for a $1.55 gain

Dan: A few weeks ago we initiated a bullish structure in QCOM (below) after it looked like it had held recent lows and a lot of the bad news was in the stock at $70. We targeted the $75 area in the stock which seemed reasonable by year end as the mid-point of the 6 month range. With the stock at $74 and nearing that midpoint of the call fly, it made sense to close this trade for more than a double with two weeks to expiration.

Read here

Thursday Dec 4th:

Name That Trade – BBRY: Expired Passport

Dan:  This stock has had nine lives in the last few years, and not too many fewer restructurings.  The fact of the matter is, that despite Wall Street analysts hating the stock (only 1 Buy rating out of 36 analysts) and 22% short interest, the stock is still up more than 40% year to date.  For those who think the fundamental turnaround is in full effect, than at the money calls seem like a better way to play than owning the stock, despite implied vol not exactly being cheap.  We don’t share this view, and are not involved, but we are going to keep a close eye on the upcoming earnings report and look for more clarity on the potential of their new enterprise software strategy.

Read here

Friday Dec 5th:

Name That Trade – AAPL Turnover – Considering Yield Enhancement

Dan: Following AAPL’s sharp sell off last Monday, and the subsequent bump in implied volatility, those that think the stock’s range over the last month could be the range for the balance of the year, overwriting a long position between now and the start of the year could be an attractive way to add a little yield.

Read here

Watch discussion from Friday’s Options Action on CNBC:

TRADE: GE ($26) Bought Feb 26 Call for .65

Dan:  So far in 2014 there hasn’t been little to say about GE as a stock and its execution as a company. The stock has been a massive underperformer to the broad market and its peers, largely due to the fact that investors have been given little confidence that the company can once again grow earnings at a single digit pace.  With vol fairly low, and the calendar about to turn, the stock could set up as a sort of “dog of the Dow” play early in the new year.   I simply bought the at the money call and will look to spread by selling the 28 strike on any near term strength.

Read here

Watch discussion from Friday’s Options Action on CNBC: