Trading Diary: Jan 26th to Jan 30th

by Dan February 1, 2015 9:39 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 26th to Jan 30th:  

Monday Jan 26h:

TRADE: PG ($89.30) Bought Feb 89/85 put spread for $1

We had a pretty simple view in PG heading into their Q4 report Tuesday morning:

the stock is expensive to itself and the market, there is no growth and headwinds of strong dollar and weak global growth should weigh on guidance. The technicals are poor and the options market does not expect movement.

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Tuesday Jan 27th:

Action: Sell to close PG ($86.70) Feb 89/85 put spread at $2.00 for $1.00 profit

On Monday, prior to the company’s Q4 results we made a bearish play into PG’s Q2 results.  With the stock down 3.5% after the miss we took the quick profit. This is a theme we want to stick with, defined risk shorts of stocks of companies with high overseas exposure, weak sales and high valuations.

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Wednesday Jan 28th:

ACTION – Sold to close the TLT ($136.50) March 130/120 put spread at .90 for a 1.10 loss

Following the FOMC statement Wed afternoon, Treasuries were bid up again, as they were the prior week following the ECB meeting, driving home the view that I am just wrong in the near term about the direction of bonds. I felt that if we were not to cut the loss sooner than later, the structure could become to far out of the money to have a shot at catching reversal over the next couple months.  We usually like to stop long premium directional options trades at half the premium originally risked, we thought we better pull the plug on this one before it became a lotto ticket.

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AAPL ($117.75) Bought Feb 117/107 put spread for 2.50

AAPL’s Q1 results were off the charts, and the Q2 guidance very achievable, but I wanted to take one shot that the stock makes a double top in the very near term back near the prior highs.  We will keep this trade on a very short leash as the stock is clearly a go to safe haven sort of trade at the moment.

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Name That Trade – Is $KORS Brewing?

KORS is looking a bit washed out heading into their Q4 report this week.  While we don’t have a strong view on the fundamentals, some of the recent options flow speaks to institutional investors looking up.  After Coach and Kate Spade’s disappointing results last week we will need to take a much closer look prior to trading in KORS.

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Thursday Jan 29th:

TRADE:  YUM ($72.75) Bought Feb 72.50 puts for 2.05

The company reports their Q4 results Wednesday Feb 4th after the close and the options market is implying about a 4% one day move vs the 4 & 8 qtr avg moves of about 4.65%. Given the volatility environment that we are in, and some very large declines post results from some bellwethers (MSFT, PG & UPS to name a few) we like the idea of fading stocks with lots of strong dollar and large emerging market exposure. YUM checks lots of boxes if you agree with this thesis.

worse than expected results, coupled with forward guidance below street consensus for 13% earnings growth and 9% sales growth (representing a meaningful uptick from 2014), seems likely and could cause a re-rating of the shares that trade 20x expected 2015 earnings.

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ACTION – Sold to close the BABA ($89)  Feb /  March 95 Put Spread at 1.10 for a ten cent gain

We got the direction right, but the magnitude of the move, and the timing wrong, and thus the trade structure wrong.  Here is a clear situation where we just got too cute.  If the stock were to fill in the earning gap over the next few weeks we night consider a short into the March 18th ipo lock-up expiration.

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Name That Trade – $GOOGL Yourself

Heading into the company’s Q4 report, options looked sort of cheap depending upon your directional  view:

If the company misses and the commentary feels like a guide lower (company does not give official guidance) then I suspect the stock fills in the entire gap from the late 2013 move back to $450, massively outperforming the implied move of 4%.  If that is your view, then the Jan30th 500 puts (stock ref $507) offered at ~$7 seem very dollar cheap.

If your view is that the company issues results and commentary that speak to the mid to high teens expected growth Wall Street analysts expect, then the Jan30th 507.50 calls (stock ref $507) offered at about $10 seem dollar cheap.

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Friday Jan 30th:

TRADE: DIS ($92.05) Buy Feb 92.50 / 87.50 Put spread for 1.50

To be honest, Disney is probably a great own some where in the mid to low $80s in the near future, but heading into next week’s Q1 earnings report the stock could be faced with some of the similar issues of a few other large cap, perceived to be defensive stock’s like AXP, PG and MSFT that have taken it on the chin post recent results. By no means does the stock appear to be too stretched from a technical standpoint, but trading at 21x expected 2015 eps growth of only 8% it appears expensive given what is expected to be some serious deceleration in growth from the 2014 Frozen effect.  This trade is designed to capture a quick move back to the mid to high $8os post the earnings event.

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From CNBC’s Options Action:

We also wanted to do a quick review of two short dated trades that were slight losers and out of the money until Friday’s afternoon decline.  Both of these trades expire in a few weeks on Feb regular expiration and we will look to actively manage them on a sharp decline early next week by taking profits or cutting for a small loss.

Considering Our Options – $UAL: Feb Put Spread

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Considering Our Options – $AAPL Turnover?

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