Trading Diary: May 18th to May 22nd

by Dan May 25, 2015 7:46 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was May 118th to May 22nd:   It was a very light week for us from a trading perspective, volumes seemed low across the board and frankly it felt like the dead of summer.  With most earnings out of the way we expect to be far more active in the coming weeks as we have tried to shy away from long premium directional trades into earnings events.


Monday May 18th:

Name That Trade – $VIX Vapors

Spot VIX once again hitting levels where Risk Reversals (selling puts to finance the purchase of out of the money call spreads) make sense.

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Trade Update – Saving Money at $WMT

Closed June call fly as the stock was below our long strike prior to earnings event which could be a make or break for the trade. Decided to cut losses for numerous reasons, none more important than the stock acted horrible heading into the print and the outcome was likely binary.

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Name That Trade – $HD: More Doing

We took a look at the trade set up heading into the company’s Q1 results, offered a couple ways to play for those with a directional inclination, but concluded:

Given the company’s exposure to rising interest rates for its effects on U.S. consumers and the housing market, I would say the risk reward of playing for new highs vs a move back to its 200 day moving average near 102 seem a bit skewed to a downside move.  Momentum seems to be waning as visibility on the U.S. consumer and rates has gotten a bit noisy.

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Tuesday May 19:

Trade Update – $DDD: Closing Aug Calls for Gain

Action: Sell to Close DDD ($22.75) Aug 21 calls at 2.75 for a .35 gain

The stock’s inability to hold any gains on perceived good news left us less inclined to hold onto a directional long premium trade. The bullish thesis was thin at best, and without any chatter about m&a in the 3D space these stocks seem likely to roundtrip the entire move back to early 2013 levels.  Took small profit and moved on.

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Name That Trade $KBH: Broken Home

We were fairly skeptical of the better than expected April housing starts and feel that for those who think the housing trade is closer to be being played out than starting another leg higher, then we think it makes sense to go after the weaker stocks in the group, like KBH.

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Name That Trade: $TGT Practice

We took a look at the trade set up heading into TGT’s Q1 results, offered a couple ways to play for those with a directional inclination, and concluded:

there are few positives to extrapolate from the likes of KSS, URBN, WFM and WMT, but companies like this that are in the midst of a turnaround, it can be hard to gauge sentiment shifts.  Given the stock’s recent under-performance to the broad markets, much in sympathy with peers I think it is safe to say that expectations are not particularly high.  So on the flip-side you  never know what sort of rabbit a company immersed in a focused turnaround can pull out of its hat.

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Wednesday May 20th:

New Trade – CRM: Cloud Nothings

Heading into CRM’s results we thought the implied move looked a tad rich given all of the takeover chatter and decided to make a defined risk short premium trade that faded the move.

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Name That Trade $BBY: Best Buy Puts?

We took a look at the trade set up into BBY’s Q1 results and highlighted some unusual options activity prior to the event.

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Thursday May 21st:

Name That Trade – $HPQ Printer Jam

We took a look at the trade set up into HPQ’s fiscal Q2 results, offered a couple ways to play depending upon your directional inclination and concluded:

Expectations are low heading into tonight’s earnings, and investors and analysts alike will be most focused on any commentary regarding the benefits of the split. A weak PC market is fairly well known at this point, and some of the data points for enterprise demand for services has been a bit mixed.

It is my sense that with short interest non-existent that the shorts have given up a bit (or merely taken profits) in front of the split which could cause a downdraft in the event of a second consecutive miss and guide down.

On the flip-side the lack of short interest places the magnitude of an upside gap on a beat and guide higher in a more modest range, making an out-sized move that much harder to achieve.

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Friday May 22nd: 

Trade Update – Closing $CRM Condor for Profit

ACTION – Bought to close the CRM (72.60) Weekly 65/67.5/72.5/75 Condor for .40 (.80 profit)

With hours to expiration and the stock just above the max profitability for the short premium trade on expiration, we concluded that it did not make sense to wait around and took the profit and moved on.

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