Trading Diary: Feb 23rd to Feb 27th

by Dan March 1, 2015 8:01 pm • Commentary

Hi Traders,

I wanted to take the opportunity to detail some emphasis in our writing style that you may have noticed. Regular readers know that we put a lot of time, research and consideration on the trades that we post on the site.  More than a year ago we introduced a post category called Name That Trade in an effort to post on ideas and research that we did not trade, but included research we thought readers might benefit from.  This post has become very popular with a lot of readers as we are able to post a greater number of stories, many of which we get questions from after the fact indicating subscribers are using the info to make their own trades.

We have been very clear from the onset of the service, that it is NOT a trade service. From our About page: is NOT A TRADE SERVICE, we do not offer advice, we are merely detailing trades that we execute, consider executing or observe in the market place. We feature commentary and trading structures that are intended to demonstrate the proper way to use options to hedge, trade and invest with defined risk.

We plan to broaden out the RiskReversal offering in the current year. A big part of this will be offering more individual ideas from multiple perspectives, including hedges against longs, stock alternatives and multiple ways to play an event. The summary of last week’s trades, trade management and new ideas is a great example of how we feel we can offer a more quality ideas each week that help readers arrive at their own conclusions.

Please feel free to post comments or concerns in the QnA section or email us directly at




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 23rd to Feb 27th:

Monday Feb 23rd:

Name That Trade – $CRM: Benioff To Never Never Land

The prior week there was some short dated out of the money put buying that appeared to be protection into Wednesday’s earnings report.  I took a look at the set up prior to the results and concluded the following:

Aside from valuation its hard to knock the company, its products, its position, its continued ability to be disruptive and its brash CEO. But it seems that investors are bracing for a material slowdown in sales growth as it seems like every enterprise computing vendor is moving some parts of their businesses to the cloud that will compete on price with some of CRM’s offerings.It was widely reported in the press (here) and on CEO Mark Benioff’s Twitter feed (here) that Metallica played at CRM’s employee “Kick Off” party, which sounds like a belated holiday party. I am hard-pressed to see the company have such a high profile event and then lay an egg on current quarter guidance…

Read original post here

Name That Trade – Taking a $TOL on My Patience

While I am not a fan of the homebuilding space in the event of rate increases by the Fed in 2015 when the economy seems to be in the midst of a very fragile state of the recovery, I concluded the earnings preview:

As I mentioned above, I suspect TOL will beat their lowered guidance from December, so the stock could open up just as it did on their Q4 report. Investors will be focused on the commentary on the 11am conference call . I see little reason to take event risk into the Q1 numbers, but could be inclined to fade an opening gap prior to the call.

The commentary was in fact upbeat, and the company did beat their lowered guidance, but the stock failed to breakout to new 52 week highs.  We are considering short trades for a failure at the prior highs $40s.

Read original post here 

Tuesday Feb 24th:

Name That Trade – $LL: Bathing in the Vertical Gain

Some unusual put activity in late January got this name on my radar, from Notable Options post Jan 23rd:

LL – saw a good size bearish roll when the stock was 56.51, a trader sold to close 15,000 Feb 60 puts at 7.50 to close and bought 15,000 March 60 puts for 10.30 to open. The company has not set its reporting date, but Bloomberg estimates Feb 19th. LL is down 14. 5% so far in 2015, but still up 13% or so from the 52 week lows made in Sept 2014 just below $ 50. The stock had a massive day, closing up 7.5%, I suppose the 22% short interest doesn’t hurt on rally days like yesterday.

The stock having filled in the earnings gap from July appeared to be at an inflection point. The stock’s 21% decline following their results confirmed said inflection.

Read original post here

Name That Trade – $HPQ: Hewlett Gonna Let the Elevator Bring Us Down?

This was the big miss of the week, we all have them, but after re-reading my thoughts on the set up into earnings, seemed that the stock’s 13% decline on the week on the heels of poor guidance was in line with my bearish leaning thesis:

I am not a fan of HPQ here, as it seems they have been in a perpetual restructuring, and the company is in the processes of splitting into two public traded companies (announced in October) cutting the cord between their computer / printer business from corporate hardware / services operations.

I would add that computer sales still make up 30% of their total sales, and if MSFT’s recent guidance and commentary on the PC front is any guide, the upgrade cycle is over.  As for services, well, they continue to gain share but are competing on price.  I am not a fan and suggest that the management has their hands full, and for those who want to play any excitement into the tax free split are likely to have a better opportunity lower.

Read original post here

Wednesday Feb 25th:

Name That Trade – And You Want a $FDX Throw Down

Fedex will report their fiscal Q3 results on March 18th, and given the stock’s outperformance in 2014 and its underperformance so far in 2015, the large transport’s results/guidance and its reaction could be market moving.  Options look cheap considering the Fed will also give a statement on rates on March 18th.

Read original post here

Name That Trade – $DDD: Beggin’ for Another Piece of That Bubble

Took a look at the trade set up in DDD heading into their Q4 report and concluded:

As for the technical set up, the stock is clearly oversold, but could the stock’s recent consolidation in and around $30 in the face of bad news in the space demonstrate a level of relative strength?

Valuation was clearly a sticking point for many in 2014, but the earnings multiple on expected 2015 earnings of 30, and trading at a little less than 4x expected 2015 sales, they are not crazy any longer. That is ONLY IF the company can achieve current consensus estimates for a growth stock that could be in the infancy of a secular trend in manufacturing.

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Thursday Feb 26th:

Name That Trade -$GPS: Money Ain’t Got No Owners, Only Spenders

Took a look at the set up into Q4 earnings.

Read original post here

Name That Trade $YUM: Kept This One in the Chamber While I Was Ponderin’

Since my bearish YUM trade expired last week the stock has had a massive rally quickly nearing the 52 week highs, I was wrong a month ago on entry, but I believe my thesis is correct, I will be looking to re-enter a short biased trade very soon.

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Friday Feb 27th:

ACTION: Sold to Close MSFT ($43.85) March 44/46 call spread at .48 for a 14 cent gain

A couple weeks ago we made a defined risk trade that MSFT would follow a few other large cap tech stocks in an effort to fill in their lower earnings gaps as broad market sentiment improved. MSFT has rallied close to 10% from its post earnings lows, and nearly 2.5% from where we entered the trade (below) but has lost a bit of momentum at the $44 level, and is potentially making a troubling technical formation called a death cross (the 50 day moving average crossing below the 200 day).  My bullish trade idea was NOT predicated on a bullish fundamental thesis, merely a technical set up and the set up looks to have run its course with little reward.

Read original post here

TRADE: QQQ ($109) Buy to Open May 108 / 98 Put Spread for 2.00

Here is a synopsis of my near term bearish thesis for Tech shares:

The rally in the Nasdaq 100 is becoming increasingly narrow, as the top five holdings (AAPL, AMZN, FB, GOOGL, & MSFT)  make up about 30% of the entire index, the top 10 make up 50% and what’s apparent is that fewer and fewer stocks are doing more and more of the heavy lifting.  The top five QQQ holdings have nearly $2 trillion in market cap, nearly equal to the remaining 90 stocks. That was a mouthful, but you get the point.

AAPL’s concentration and unnatural sentiment should scare the crap out of investors as it seems few have a care in the world with most every major equity index at or approaching new all time highs. Also, you have a recent resurgence of some bubble stocks (AMZN, NFLX, LNKD & TWTR) while you have under-performance coupled with potentially nasty technical formations in some mega-cap prior market leaders (INTC, MU & MSFT).

Read original post here

Discussion from CNBC’s Options Action:

Name That Trade – $GE: Electric Boogaloo

The largest trade on Friday across single stock, etf and index options was a long dated bullish trade in GE.  When the stock was $25.93 a trader paid .52 for 125,000 of the Jan2017 30 /35 call spread to open, spending $6.5 million in premium for long exposure in between $30.52 and $35 on Jan 2017 expiration with a break-even up 18%, and a max gain of $4.48 (17.5% of the underlying stock price) or about $56 million if the stock is $35 or higher, up 35%.

I suspect this trade was to add leverage for an investor with an existing long position, as the spread offers a 10 to 1 pay out in a stock that is not particularly known for dramatic movement.

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Anatomy of a Trade – Mind the $GPS

Prior to GPS Q4 results Thursday night we detailed a couple ways to play for those with a directional view. We got a great question on how to manage the bullish trade structure with the stock up a couple % after the print. CC detailed the sensitivities of the trade a few weeks to expiration, after the event with the stock very near the guts of the call fly.

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Name That Trade – $IYT: Dow Theory of Everything

The Dow Jones Transports have not confirmed the recent new highs in the Dow Jones Industrials, and some of the large components of the index like FDX could be losing momentum.  This would be a no-no for those who use the “Dow Theory” as a market timing input.  IYT options trade by appointment and are very wide which make them a fairly unattractive way to express a view in the Transports.

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