Trading Diary April 20th – April 24th

by Dan April 26, 2015 7:44 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was April 20th to 24th:  


Monday April 20th:

Name That Trade – $IBM: You’re My Boy Blue

My View into the print:

Expectations are clearly low on IBM, and after the GE restructuring announcement a week ago Friday, I am hard-pressed to think that the c-level suite at IBM is not frantically thinking about how to create a much more nimble company to compete in a computing world whose ground is moving quickly below its feet.  The only problem, as we discussed back in October, is that IBM seems to be the sort of company that needs to pay others to di-vest their non-core businesses.

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New Trade – $XLY: At Your Discretion

Action: XLY ($75.80) Buy to Open May 75 put for 90 cents

I have a couple long biased positions in Macy’s and Nike, but thought there was the potential for the sector as a hole to re-trace back to recent technical support in the low $70s.

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Chart of the Day – $MSFT Spot

Prior to the company’s earnings we highlighted some bullish options activity that clearly showed traders playing for a fill of the January earnings gap.

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Tuesday April 21st: 

New Trade – Technical $KO

TRADE – KO ($40.82) Buy to April 24th weekly 41/42/43 call butterfly for .20

We thought that KO shares had the potential to bounce after Q1 results in line with the implied move, this is what we had to say:

trade offers a great risk/reward on a move to 42 and is the lowest premium outlay available to position for that. The problem with the trade, obviously, is commissions on small lots which can make total premium outlay from a percentage perspective worse for such a small width fly. E.g. -The 41/42 call spread has lesser commissions but at around .31 has a higher breakeven and worse risk/reward, risking .31 to make .69 vs risking .20 to make up to .80, and a wider range to the upside to achieve.  This sort of trade using weeklies has the potential to be binary which is one reason why I am looking for the lowest possible premium outlay.

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Name That Trade(s) – Do You $YHOO

My View on YHOO:  Following Q1’s results, I would be inclined to be a buyer on weakness, probably at $40 as it is my belief that if BABA were to find support at $80, and YHOO showed the slightest bit of progress in their core in the coming months prior to the BABA spin, YHOO would be back above $50 prior to the Spin.

Here were a couple trades that I was considering, and with the report out I am considering call calendars to finance the owning longer dated calls:

Long Stock Alternative:

YHOO ($44.80) Buy Jan16 40 / 50 Risk Reversal for .25

Or Call Calendar:

YHOO ($44.80) Buy the May/July 48 call calendar for .70

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Wednesday April 22nd:

New Trade – Bid on $EBAY’s Paypal Auction

TRADE – Buy the EBAY ($56.75) May/July 60 call calendar for .83

Rationale – This trade positions for a move higher between now and May expiration with the potential for owning the breakout above 60 after May expiration. Ideally the stock is higher on earnings but not through 60. Following May expiration the July calls can be rolled as a calendar by selling June or turned into a vertical by selling a higher call in July. This decision rests largely on where the stock is. At initiation the trade is +10 deltas and sells vol at 29 in May in order to finance buying 23 vol in July.

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Name That Trade(s) – For $FB Holders

My view into the print:

I would say going forward that the law of large numbers is very likely to kick in sooner than later as sales growth is expected to decelerate from 58% in 2014 to 37% in 2015. While 37% on last year’s $12.5 billion is nothing short of impressive, the stock’s valuation adequately reflects this performance trading at 17.5x trailing 12 month SALES, about 14x expected 2015 sales.  With a $235 billion market cap, $100 billion less than GOOGL which had more than 4x FB’s 2014 sales, I suspect there is little room for error here.


Make no mistake, the stock is priced for perfection and I think the fact that the entire investment community seems so comfortable assigning a $235 billion market value (one third of Apple’s, who has more than 10x their trailing sales, but half their margins… kind of apples to oranges, but you get the point) seems a bit crazy to me.

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Thursday April 23rd:

Trade Update – $EBAY: Closing call calendar for Quick Profit

Action: Sell to Close EBAY ($59.25) May/July 60 call calendar at 1.25 for a .42 profit

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Earnings Previews:  In front of 3 high profile earnings reports we offered our analysis and some trade ideas depending upon ones current positioning or directional inclination:

Name That Trade – $GOOGL Eyes

Name That Trade – Navigating The $AMZN

Name That Trade – $SBUX: Coffee Break


Friday April 24th:

New Trade $INTC: Chipping Away At July Puts

Trade: INTC ($32.17) Buy May / July 30 put spread for .50

Rationale:  I want to set up to own INTC puts for their Q2 results due in Mid July. But that’s a long ways off, and I don’t exactly want to sit on long premium trades, so in the mean time I am going to look to finance July puts.

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Name That Trade – $TWTR: Take These Broken Wings

Here is the trade that I am considering to replace my long stock position and define my risk into the potentially volatile earnings report Tuesday after the close.  Be sure to check back prior to the report to see what I trade I decide to do.

Hypothetical Trade: TWTR ($51) Buy May 52 / 60 Call Spread for 2.00

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