Trading Diary: Feb 2nd to Feb 6th

by Dan February 8, 2015 5:11 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 Feb 2nd to Feb 6th:  

Monday Feb 2nd:

Action: Sell to Close UAL ($66.06) Feb 70/62.50 Put Spread at 3.79 for a $1.50 gain

We had been fighting this bearish view in Airlines stocks for a few weeks and felt that the quick 10% decline on the heels of stronger crude oil was just the opportunity to exit the position gracefully, with a gain.

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Action: YUM ($71.10) Sell to open 1 Feb 68 Put at 1.05 to open
New Position: YUM ($71.10) Long Feb 72.50 / 68 put spread for 1.00

When we initiated the bearish position the prior week we wanted to use any weakness prior to the earnings report to spread the puts that we owned to further reduce our break-even.  Monday’s sell off did the trick, offering us the opportunity to spread into a $4.50 wide put spread that was already $1.40 in the money cutting our original premium at risk in half.

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Name That Trade(s) – $UPS: Tracking Number

Weekly calls looked cheap into the official Q4 print that had already been pre-announced and caused a 10% sell off in the shares a couple weeks back.  Also in the money call flies looked more attractive than long stock with the stock sitting on $100 technical support for those who thought the stock could fill in a bit of the gap.

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Name that Trade – $CLF Diving

Heading into the company’s Q4 print, and following U.S. Steel’s beat the prior week, the stock appeared to be a bit oversold from a technical standpoint, and very unloved from in terms of sentiment.  While upside calls did not exactly look dollar cheap for a single digit priced stock, out of the money call spreads looked ok and I was in the camp that I would much rather play for a short squeeze from the long side than press a beaten down stock like this.

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Tuesday Feb 3rd:

Trade: Against 100 shares of TWTR long $40: Buy Feb 6th weekly 37.50 / June 52.50 collar for even $

-Sell to open 1 June 52.50 call at 1.35 and

-Buy to open 1 Feb 6th weekly 37.50 put for 1.35

While we have had a fairly bullish outlook on TWTR shares since initiating a long stock position in July (exiting in Sept) and then again in early Jan. We thought the potential for near term disappointment was better than 50/50, and the recent run up in the stock offered the potential to hedge by selling well out of the money calls to fund the purchase of short dated puts to protect at our purchase price.

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Name That Trade – $CLX: Expensive Price to Pay for Yield

I attempted to put this stock in the camp of other consumer staples like PG that had recently offered disappointing guidance given the strength of the dollar and their exposure overseas, but I balked on this one as CLX has far less exposure overseas than its home-products peer.  Regardless, I see many similarities as it relates to top line growth and the two stock’s earnings multiples. It is my sense that investors are and have been overpaying for yield in defensive sectors, which I would include utilities in this thesis.

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Considering Our Options: $DIS Feb Put Spread

Prior to the company’s Q4 report I had the following caveat, I should have listened to my own advice:

Friday afternoon I laid out a very near term bearish case for shares of Disney (DIS) into their fiscal Q1 report due after the close tonight (read below).  I wanted to be very clear, DIS is a stock that is actually on my Buy list on quick reset to the mid to low $80s as their movie pipeline for the balance of the year (Avengers in May & Star Wars in Dec) could have a sort of “Frozen” effect on earnings for the back half of 2015 into 2016.  But in the near term, the recent hiccups in ad spacing at ESPN, the tough comparisons from Frozen, the recent results from Cruise lines and the stock’s valuation line up for the potential for a “sell the news” reaction on weaker than expected guidance.

Obviously earnings trades that are directional, and utilize short dated long premium structures can be a difficult way to make a living, and I usually risk what I am willing to lose on such trades

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Wednesday Feb 4th:

Name That Trade – $UA: Protect This How?

Mostly U.S. sales, strong product cycles, but a really expensive stock.  It was my sense a breakout was in the cards, I just didn’t have the conviction to play as the DIS fiasco got me a little turned around on earnings plays.

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Name That Trade – $TSLA: Powering Down?

The stock has bounced hard off of the early Jan decline on news that sales of the Model S would disappoint in China.  The stock is once again approaching the downtrend line that has been in place since the all time highs.  For those that think the company misses on deliveries, and guides Q1 down, this could be a great entry for a short biased trade into next week’s print.

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Action: Sell to Close AAPL ($120) Feb 117 / 107 put spread at 1.20 for a $1 loss

We took one shot to see if the stock would give back some of its first day gains following its blow out fiscal Q1 results. Well it didn’t, and we set a mental stop of $120 at the prior all time high to pull the plug on the contrarian trade before the trade was not even worth selling if the premium left was too low. We also like to use a 50% stop of long premium directional trades.

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Trade Update – $DIS: Feb Put Spread, Swing & Big Miss

Flat out disaster of an idea, and trade, way too many caveats, this one stung. If you haven’t done so yet please read my post as to why I should have questioned this trade from the get go.

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Thursday Feb 5th:

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

We wanted to update a bullish risk reversal which we had detailed a month ago, but also offer some long alternatives that we thought looked attractive into the print. We also gave the bears something to chew on with a trade idea to play for a move back to the 2015 lows.  We had already collared our long stock position.

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Name That Trade(s) $LNKD: Linked Into Earnings 
Quick earnings preview and offered a coupled ideas that got one to the implied move in either direction.

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Considering Our Options: $YUM Feb Put Spread

With the stock a little above the levels where we first initiated the trade, we wanted to give a bit more color on where we stood (hint more emboldened).

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Friday Feb 6th:

Name That Trade – $F: Ford Pick-up?
Hypothetical Trade: F ($15.90) Buy to Open May 16 calls for .70

Break-Even on May Expiration:

Profits:  above 16.70, up 5%

Given the strength in January auto data, the slight increase in wage inflation in the January Jobs report, and the epic breakouts to new highs in used auto and new parts makers (AN, DLPH & ORLY), Ford hit my radar as candidate for a run back to the multi-year highs in the coming week.  But given the stock’s 11% bounce in the prior week I wanted to wait for a just a bit of a pullback. At the money calls in May look dollar cheap given the fact they will catch 3 monthly sales reports and Q1 earnings in April.  We will look to enter this trade on a few % pullback.

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From CNBC’s Options Action:

Name That Trade(s)- $M: Considering 2015 Guidance

Macy’s fits a theme that has been working in retail so far this reporting season, those with no revenue exposure outside the U.S. should see the benefit of lower oil in two ways, first as an input cost on their side and second from their mid level consumer who has the perceived benefit of lower gas at the pump.  We will take a closer look prior to this week report, but wanted to lay out a couple ways we may look to play if the stock were to come in a bit.

First – Directional:

Hypothetical Trade – Macy’s (M) $64 Buy the March 60 / 65 Risk Reversal for .75

-Sell to Open 1 March 60 put at .90

-Buy to Open 1 March 65 call for 1.65


Second – Near Term Consolidation in front of Catalyst: 

Hypothetical Trade – Macy’s (M) $64 Buy the Feb / March 65 Call Calendar for 1.10

-Sell to Open 1 Feb 65 call at .55

-Buy to Open 1 March 65 call for 1.65

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