Trading Diary – May 4th to May 8th

by Dan May 10, 2015 7:49 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was May 4th to May 8th:

Monday May 4th:

Name That Trade – $CRM: Head in the Cloud

We wanted to lay out a sort of “where there is smoke there is fire trade” with the following rationale:

CRM is scheduled to report fiscal Q1 results on May 20th, and I suspect the rumor-mill will get fired up prior to the event.  For those that think deal or no deal the stock is going up on a beat and raise, and that the potential for deal chatter puts a floor in the stock then a long entry back towards the breakout level at $70 makes sense

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Name That Trade – $DIS Magic

In front of Q1 results it was our sense that:

the stock’s performance since their last report, up 17%, the stock looks fully valued and the stock’s price likely reflects a beat of the quarter just reported and likely a modest guide higher. An inline quarter and a modest guide lower and the stock is down in line with the implied move, and possibly re-tests $105 in the days to come.

Call sales against long stock in the very near term look like a good way to add a little yield, or possibly a small buffer to the downside.

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Tuesday May 5th:

Name That Trade – $BABA Phooey

Prior to BABA’s Q1 results we took a look at the setup and concluded the following:

So has the sentiment gone from bad to worse? No doubt. And therefore you can’t get too beared up here. But given all the new shares that can sell after the March lock up, I suspect that a bad miss and guide down could see the stock retrace back to the ipo price. On a beat and raise the stock is back at $90 in a heartbeat, and the most likely scenario is mild beat/ miss and guidance that is not a huge shock and the stock is up or down in line with the implied move.  If sentiment goes too overboard in the other direction I myself would strongly consider buying the stock back towards its IPO price.

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Wednesday May 6th:

Trade Update – $TSLA: Closing May Put Spread In Front of Earnings

Action: Sell to Close TSLA ($229) May 225/185 Put Spread at $7 for a 1.50 loss

In front of Q1 results, with the stock right where we put the trade on with the spread worth less than we paid, we felt that we didn’t have the right trade on:

and the risk is too great and we are going to cut our losses despite what we feel is a strong potential for the stock to retrace a good bit of its recent gains on guidance that is below expectations.

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Name That Trade – $GILD: It’s Da Balm Yo

We considered stock replacement strategies for long holders given:

The stock’s waning momentum could be a problem, especially as it seems volatility has picked up a bit with the XBI (the SPDR S&P Biotech etf) which has far less concentration among the larger names and is down almost 13% from its 52 week highs made in March.  If I were to get involved at these levels with a large cap stock like GILD, that is crowded and slightly controversial, I would consider doing so with defined risk.

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Thursday May 7th:

New Trade – Saggy $DDD

Trade: DDD ($21.96) Buy to Open Aug 21 Calls for 2.40

With YELP up 25% on rumors that they hired bankers to explore a sale, it was my sense that DDD could be poised for a similar sort of move on the slightest rumor of consolidation in the 3D printing space.

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New Trade – $GOOGL: I’m Feeling Lucky

Trade: GOOGL ($544.25) Buy to June 540/565/590 call butterfly for $6

The stock’s underperformance over the last year, coupled with the impending addition of a new cfo in a few weeks could shift investors to focus to the potential for capital return.  An in the money call fly which defines risk to an important technical support level over the next month in our mind was more attractive than a long stock position.

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Friday May 8th:

New Trade – $GOOGL Calendar

Trade: GOOGL ($550) Buy May 29th weekly / July 570 call calendar for $9

While the trade from the prior day targeted a 5% move higher in the next month, this trade helps finance the purchase of longer dated calls that will catch the company’s next earnings report.

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