Trading Diary: Feb 17th to Feb 20th

by Dan February 22, 2015 7:37 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 17th to Feb 20th:  

Monday Feb 16th:

U.S. markets closed for Presidents Day

Tuesday Feb 17th:

Name That Trade – $BABA Oh Really

There were a few large cap tech stocks that had gapped lower following either poor results and or guidance (BIDU, EXPE & QCOM) that saw sharp reversals with the stock’s filling in those gaps.  The sentiment and the price action in BABA in 2015 is downright horrible, and despite the company’s impending lock-up expiration of 429 million shares in March we took a look at the stock and its options to consider a near term contrarian play for a gap fill back to 100 prior to the lock-up expiration.  The stock did not hold $90 on the upside, so we decided not to get involved.

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Name That Trade – $GRMN: Recalculating

We took a look at the set up in the stock heading into the company’s Q4 results and identified a couple ways to play for those with a directional view.  Here was our view:

The stock is clearly in no man’s land. The distance between where it is now and last Summer’s highs is about $6 and the distance to the lows that came afterwards (in Oct ’14 and then again around Jan 1st) is slightly more. And after the sharp rise over the last month I think its safe to say the main risk is to the downside.

Since reporting GRMN has declined more than 12%, breaking key long term technical support at $50.  The company has a lot of cash on their balance sheet, and no debt, we could see them in the market to make a transformative acquisition prior to or shortly after the launch of Apple’s Watch in April, or possibly activists get involved as the company has 30% of its market cap in cash.

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Wednesday Feb 18th:

Name That Trade – $BBBY: Blood Bath Beyond?

The stock has filled in most of its early January earnings gap, and this one is on our radar as company that could most definitely disappoint again when they report in early April.  Its on our radar, we did not do anything as we wanted to wait for this week when April options are listed.

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Name That Trade – $FB: Poke Higher?

In hindsight with the stock closing up more than 5% on the week, near $80, this seemed like an easy one, this is what I had to say on Wednesday when the stock was $76.50:

with the most major U.S. equity indices breaking out to new highs, or threatening prior highs, I am hard pressed to think that a bull market leader like Facebook would not participate. With options premiums low, playing for a breakout of the long term base, looks attractive.  There are two trades that we are considering given the current listed expirations (May will be listed Monday, and that is our desired month as it catches their next earnings event, that would be the catalysts for a massive breakout).

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Name That Trade – $TRN: Not Falling in Love with this One

This looked like an interesting vol play heading into their print. This is what I had to say:

Given the stock’s 24% bounce from the January lows, the 40% decline from the September highs, and the 13% short interest, the stock looks poised to move on any bit of unexpected news on tonight’s call. I have no fundamental view on the company, but gun to my head I would play for movement, no matter the direction. Long premium, non-directional vol plays are not for everyone, and are generally lower probability trades than short premium into events. For instance, if you paid $2 for the TRN Feb 30 straddle, and the stock did not move your entire premium would be at risk this week

Well, by the end of the week the stock closed nearly 10% higher, and long vol would have been the right way to play.  Whats interesting about this trade was that the move appeared to look dollar cheap, meaning that the at the money weekly straddle of $2, with the stock at $30, into an event, after the stock was $50 a few months ago, and $25 a couple weeks ago, I was hard pressed to think the stock wouldn’t move one way or the other.

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Thursday Feb 19th:

Name That Trade – $EBAY: Buy It How?

There was an interesting three legged bullish trade that caught our eye for a couple reasons.  First the choice of strikes, selling the $50 put (long term support) and buying a call spread above the breakout level ($60).  Second, the choice of Jan16 giving this thesis plenty of time to play out and wide band of no losses of profits, looking for the second half tax free spinoff of PayPal to serve as the catalyst for the move above the all time highs.  We like this trade structure, the expiration, the potential catalyst and the strikes, we just don’t love the entry, would look to move down strikes a bit on a move back to the mid to low 50s.

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Name That Trade – $XOM Needs a Tiger in Its Tank

The company had a bad week on the news front, Buffett dumping his stake, and a fire at a large refinery in California. While the stock feels heavy in the high $80s, there is one identifiable catalyst outside oil’s movement that is on our radar, March 4th analyst meeting.  Options look fairly reasonably priced in the near term:

Between now and March 6th weekly expiration, the options market is pricing about 3.3% move in the stock.   With stock at $90, the March 6th 90  straddle (the put and the call) is offered at about $3, so if you bought that you would need a move above $93, or below $87 by the close on Friday March 6th to just break-even.

But longer term the skew makes long stock alternatives attractive (excluding the dividend):

We like the Oct 80/95 risk reversal for about even money (10c credit with stock at 89.80). That’s selling 23 vol in the puts and buying 17 vol in the calls. That skew is the reason why the calls are are only 5 dollars out of the money while the puts are nearly 10. That’s a much better trade than buying stock here for those not concerned with collecting the 3% dividend yield.

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Friday Feb 20th:

TRADE: Macy’s ($63.25) Buy to Open March 65/67.50 call spread for 60 cents

-Buy 1 March 65 call for .90

-Sell 1 March 67.50 call at .30

Macy’s reports Q4 results Tuesday before the open.  The implied move in the options market is about 3% vs the 4% avg over the last 4 qtrs, and the 4.5% avg over the last 8 qtrs  Macy’s like Nordstrom (JWN) and Kohl’s (KSS) has 100% revenue exposure to the U.S., so have little to no affect at all from the strength of the dollar, and their customers should benefit from lower gas at the pump.  IN the last couple weeks KSS and JWN (just Friday) broke out to new all time highs after giving results /guidance.  Macy’s has under-performed so far in 2015 (down 3.5% on the year and down 7.5% from the all time high on Jan 7th), and the stock has already absorbed plenty of news over the last couple months (they have reported Q4 comps, reiterated 2014 guidance, made an acquisition of a beauty brand and announced some store closings). It is my view that the stock is going to trade on fiscal 2016 guidance given Tuesday, and if JWN’s price action post its results/outlook (they actually guided current fiscal year down) is to be used as a guide, then Macy’s could be a scoop at these levels into the print. But I want to define my risk to play for a near term move back to the prior highs:


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Discussion on CNBC’s Options Action:

Trade Update – Considering Rolling Bearish $YUM View

I am no less convicted on my bearish thesis on YUM, but some call activity on Thursday was kind of curious:

When the stock was $76.39 there was a buyer of 3,000 Feb 27th next week 77.50 calls for .47 to open and a buyer of 5,000 March 82.,50/85 call spreads for .15 to open.  Both purchases are curious. First, the weeklies as there is no scheduled events next week, and then the March call spread that breaks even up 8% at 82.69, with a max gain of 2.35 at 85 or higher up 11% from the purchase price.  The call spread has a fantastic risk reward if one had any conviction that there could be some sort of event that could catalyze a massive move.

I am keeping a close eye on this one, and want to see what next week brings.  An ideal entry on the short side would be closer to the December high of $78.50

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Name That Trade – $HD: Let’s… Do This??

The Home Depot (HD) reports their Q4 results Tuesday prior to the open, the options market is implying a 3.5% one day move vs the 4 qtr avg of about the same and the 8 qtr avg of about 3%.

The stock had a monster 2014, up 27%, and is already up 5% in 2015. A continued period of record low rates, a stable housing market, low gas at the pump is benefiting their consumers, and almost 90% of their sales come from the U.S., shielding them from the negative effects of the surging dollar. The company seems to be in a sweet spot.  The stock is within 2% from its all time highs made earlier in the week. But it’s trading at 21x expected 2015 earnings growth so I think it is safe to say sentiment reflects the bull case with the trailing P/E at 13 year highs.

I suspect the stock is priced for perfection, and the slightest miss or guide down could cause the stock to give back the year to date gains.  We will take a closer look tomorrow prior to the results and consider trades.

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Trades Expiring:

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.

By Dan and CC

New Position – Long the QQQ Feb 101/95 put spread for 40 cents


By Dan

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


10:22 am EST – February 2, 2015

New Position: YUM ($71.10) Long Feb 72.50 / 68 put spread for 1.00


 By Enis and Dan

TRADE – HD ($94.74) Bought the Feb 95/85 Put Spread for $3.05