Trading Diary: Jan 5th to Jan 9th

by Dan January 11, 2015 6:09 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 Jan 5th to Jan 9th:  


Monday Jan 5th:

ACTION – versus 1 QQQ ($101.25) Feb 101 put sell 1 Feb 95 put at 1.05 to open
New Position – Long the QQQ Feb 101/95 put spread for 40 cents

The Nasdaq 100 started the year weak and made a very quick move to my long put strike, which gave me the opportunity to further reduce the premium at risk on the trade (started as a put calendar).  I chose to sell the Feb 95 strike put to make a vertical spread as I am now risking 40 cents to positively make 5.60 if the QQQ is down 6% in the next month and a half.

Read here

Name That Trade – $MU Shu Pork

Prior to the company’s Q4 report, I highlighted a bullish roll in calls when the stock was $34:

a trader sold 3700 Jan 35 calls at 96 cents to close and bought 3700 July 35 calls for 3.65 to open


What I find interesting about this trade is that the premium that was purchased, was more than 10% of the underlying stock price, so the trader paid $3.65 for the right to own MU on July expiration at $35, seems a bit hefty no?

I concluded:

This may come as a surprise to some, but I don’t like the risk reward for a long entry at current levels for investors, as I suspect we see $30 in the coming weeks.

Read here

Tuesday Jan 6th:

ACTION – ALTR ($36.40) Sold to close the Jan 38/35 1×2 Put Spread at 1.25 for a .35 profit

The trade idea was originally conceived with the idea of catching a bit of consolidation after such a large move off of the October lows.  The best case scenario would have been a 5% decline towards the mid point of the put fly.  The stock did come in a couple percent but showed healthy resistance and we decided to close for a small profit rather than risk the potential for a sharp rally on the heels of Q4 results in expiration week rendering the trade a loser.

Read here

ACTION – DE ($85.25) Sold to close the Jan 3oth 88/82 put spread at 2.45 for a $1 profit

shares of DE have sold off 7% since its December highs, and down 4.5% since we entered bearish the trade. While the short strike of our put spread clearly looks like support, we took profits on the trade as fear of a short term reversal in crude oil could cause a short squeeze in stocks that have sold off in sympathy. 

Read here


Wednesday Jan 7th:

Name That Trade – Twitter ($TWTR): Bird Watching

HYPOTHETICAL TRADE: TWTR ($37.42) Buy the Feb 32 / 42 Risk Reversal for 40 cents

-Sell to open 1 Feb 32 Put at 1.20

-Buy to open 1 Feb 42 Call for 1.60

At the time I was considering merely buying the shares, but the stock’s early week strength had me waiting to pull the trigger, but exploring options structures to offer a better risk/reward.  Here the discussion of the risk reversal:

This structure creates a fairly wide band of little to no loss or profit with massive potential profit in the event of an upside move like we saw in July post Q2 earnings. This is not a high probability trade given the wide break-evens, but if you are worried that the recent excitement results in fast money peeling out with no news then this trade offers the potential for leverage to the upside while little risk for another 13%.

Read here

Thursday Jan 8th:

New Investment – TWTR: ReTweeted

Action: Bought TWTR at $37.60, fully expecting, and hoping to average down in the next few weeks.

Read here


Friday Jan 9th:

Name That Trade – $JPM: Bank Teller?

TRADE: JPM ($59.40) Buy the Jan 59.5 put for 1.00

The continued weakness in the Euro and the Euro Stoxx Bank Index (SX7E) suggests there is a volatility storm brewing that I suspect will at some point very soon include U.S. banks. Next week most U.S. bank stocks will report Q4 results and offer Q1 guidance, this could be the impetus for our banks to make lower lows.  I would also add that the Fed speak this past week was fairly dovish, and investors may start factoring in lower rates for longer in U.S. bank earnings.  If we get an early week bounce this is the sort of trade I am looking to put on.

Read here

Name That Trade – $GOOGL Yourself

I took a look at the technical set up with the stock sitting on important support at $500, which looks precarious at best.  Also looked at options pricing, which to be honest looks pretty fair given the vol environment we are in, and the potential for Google to move at least 4% (its 4 qtr avg) following their Q4 earnings report on Jan 29th.  Here was a quick summary of what the options market is pricing between now and month end:

Looking at the Jan 30th weekly expiration that will capture Q4 results, the implied move between now and then looks pretty fair. The Jan30th 500 straddle, stock ref $500.50 (long the call and the put) is offered at ~$30. So if you bought the Jan30th 500 straddle for $30, you would need a move above $530, or below $470 to make money on expiration, or about 6%. This seems pretty reasonable when you consider the strong likelihood that the stock moves at least 3 to 4% the day of expiration following the earnings report with any moves before then a bonus.

Alternatively, for those who have a view, or are possibly looking for protection, the Jan30th 500 puts offered at $14.50 seem more than reasonable, at 3% of the underlying stock price.

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