Trade Update – Macy’s ($M): Closing May Call Fly for a Wash

by Dan May 1, 2015 11:48 am • Commentary

A month ago we rolled a bullish view on shares of Macy’s (M) into a call butterfly in May expiration, to refresh:

New Position – Long the M ($65.00) May 65/70/75 call butterfly for 1.15 (currently costs 1.25)

Much like the situation with the bullish NKE trade that I just closed, this trade lines up very similarly.  The intent at the time time was to play for breakout to new highs following the company’s earnings.  The stock did breakout, but has since re-traced the entire move. Barring a broad market sell off, the stock looks ok here, but, just as with NKE, time is not going to be my friend for this trade as the value of my short leg has diminished dramatically (which was the intent) and now I am essentially just long an at the money call that will also start to lose much of its extrinsic value as we get closer to May expiration in two weeks. At this point I can’t identify a catalyst as to why the stock should rally, and I am going to close rather to play a waiting game as the trade has worse odds than a coin flip.

Action: Sell to Close M ($64.85) May 65/70 1×2 call spread at 1.15 for a wash*

* I am not going to sell the May 75 calls as they would be sold for a penny and frankly commissions would cost more to do so, and it is essentially a lotto ticket keeping it as a long.



Previous Post April 1st, 2015: Trade Update – Macy’s ($M) – The Parade Rolls On

Last week I checked in with our Macy’s call calendar. At the time the stock had gone higher through our strike and was actually net short deltas at that point, a position slightly at odds with our favorable view of the stock. At the time I said this:

Right now the call calendar is short about 4-5 deltas. So not a ton of risk here as far as direction goes. But that’s only if the stock doesn’t go crazy on the upside. Those deltas will get shorter the higher we go, and closer to neutral the closer the stock gets to $65.

Ideally we see a little pullback towards $65 and we can close the April call and roll that short call out to May to create a vertical. Mark to market the trade is worth a few cents more than we paid for it. The longer it hangs out here the better the roll will be. And at $65 would be the ideal point to roll.  

So today we have the stock back near $65 and have a decision to make. In a way we have the stock right where we want it, especially with a 3 day weekend coming up. But the decay collected each day in only 1-2 cents. So it’s not like we’re in some sort of theta holiday bonanza. In our view, the bigger risk here is the stock making a run higher and us being stuck in a short delta position. Therefore we’ll take this opportunity to roll the position to a more bullish one, entirely within May. The trade is up ever so slightly which basically saves us about 10c on the roll:

ACTION – Bought to close the M ($65.00) April 65 calls for 1.10

– Sold to open the May 70/75 2×1 call spreads at .90 (sold 2 May 70 calls at .50 for $1 total, and bought 1 May 75 call for .10)

New Position – Long the M ($65.00) May 65/70/75 call butterfly for 1.15 (currently costs 1.25)

Rationale – The calendar essentially “made” 10 cents (if we closed it right here) which gives us a slightly better entry on the May butterfly. Sticking around with the stock at $65 would make this roll even better but we’re worried about the position getting away from us if Macy’s goes higher, as it wasn’t our intention to be short deltas.