Trading Diary: June 8th to 12th

by Dan June 14, 2015 10:25 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was June 8th to June 12th:


Monday June 8th:

Name That Trade $LULU: Options Prices Lack Flexibility

We took a look at the trade set up into fiscal Q1 results.

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Name That Trade – $JPM: One Large Investor Sees Limited Near Term Upside

We detailed the largest options trade that occurred on the day which was a yield enhancement strategy in one of the best performing banks ytd:

The largest trade in the options market so far today (single stock, etf or index) is an opening sale in JP Morgan (JPM) calls. Shortly after the open and when the stock was $67.29 an investor sold 50,000 of the Aug 67.50 calls at 1.92.  I suspect a sale of very near the money calls like this is an overwrite against 5,000,000 shares of stock. An overwrite of this nature would make sense if the investor thought the stock could have limited upside over the course of the summer and would be happy to have their stock called away modestly higher, effectively at $69.42, up about 3% (the strike price plus the premium received), while also building in a buffer to the downside of about 3%.  

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Tuesday June 9th:

New Trade – $GPRO: Quad-Copters, Really??

New Trade: GPRO ($59) Buy to Open June regular 59/55/51 Put Fly for 1.00

Despite relatively low levels of implied vol I used a strategy that we usually employ to offset high options prices. In this case I used the structure to reduce my premium outlay and define a wide range of profitability to the downside over the next 10 trading days.

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Trade Update $LNKD: Closing July Call Fly for a Profit

ACTION: LNKD ($218) Sold to close the July 200/220/240 call fly at 7.75 for a $3 profit

The stock’s strength on unconfirmed take-over chatter that at best seems flimsy, we decided to take the short term profit.

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New Trade – $TWTR: Bird Dropping

New Trade: TWTR ($35.70) Buy Sept 35/45 call spread for 2.80

The stock’s atrocious price action caused me to replace long stock with a long premium defined risk trade structure.

Rationale:  This trade structure is in the money and a spread, which is an attempt to offset a bit of decay as this trade is acting as a replacement for long stock and I don’t want to compound the problem with an out of the money structure that could decay to nothing if the stock goes sideways. If the stock has not moved much in the coming month prior to Q2 results expected in late July, I will likely consider rolling the short call lower in an attempt to further reduce my break-even, and thus the risk on the trade.  

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Wednesday June 10th:

Name That Trade – $MU Shoo

Considering bearish trades.

The stock is a tough press on the short, down 28% on the year sitting on a key support level, but if I had a convicted bearish view that the company would miss and guide down in late June, I would buy the July 2nd weekly 25/23 put spread for 55 cents with the stock $25.35. This trade offers a break-even at 24.45, with gains up to 1.45 down to 23 and a max gain of 1.45 below.

I am hesitant to press here, and would likely look for a bounce, but with the stock acting the way it does on a massive up day today, that may never come.

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Name That Trade – Sick In a $BOX

Prior to the company’s Q1 results we took a look at the trade set up of the cloud storage company and concluded that despite the 10% implied move into the event, investors will quickly shift focus, despite the result to the impending 6 month IPO lock-up.

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Thursday June 11th:

New Trade – $CAT Scratch Fever

New Trade: CAT ($88.25) Buy the July / Aug 85 Put Calendar for $1.10

Rationale:  The stock has bounced, and we’ve tried to be patient. We like the set-up even more here with the stock above $88, with $90 serving as potentially staunch technical resistance. In the original post we liked the idea of looking out until August and targeting a move back to the 52 week lows, but we’ve decided that the stock’s bounce provides an opportunity to finance the potential for a breakdown in August following Q2 results in late July.

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Name That Trade – $KO: Pour Some Sugar On Me

Considering bearish trade on a bounce from technical support.

Hypothetical Trade: KO ($40.18) Buy to open July 24th weekly 40 puts at .67

Rationale:  One reason to wait for a bounce is to give a little more time so that the company can confirm their reporting date. While the likelihood is that the company reports by July 24th there are no guarantees. Owning July 24th options only to see the company announce their reporting date after that date would mean watching vol come in hard and premium erode in that expiration. We considered going out to August which is sure to capture earnings but the trade is meant to isolate earnings and there’s no need to spend more money for that extra time.

Short premium strategies make little sense here with vol as low as it is, and near the money options are very dollar cheap.

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Friday June 12th:

We considered two different protective structures for those with long positions in two widely owned large cap tech stocks, one premium neutral, the other slightly out of the money long premium:

Name That Trade – $FB: Protection to Poke Higher

Hypothetical Trade – Against 100 shares of FB at $81.70: Buy Aug 75 / 90 Collar for 30 cents

Rationale: Facebook has had a great run but has been going sideways for some time. Those that are long and would like to stick around through the next earnings should consider collaring stock. The short call does cap upside but a 10% gain on a market cap this big is nothing to shake a stick at, while that protection below should enable long holders to not worry as much about any massive downside moves.

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Discussed on Friday’s Options Action on CNBC:

Name That Trade – $AMZN: Prime Candidate for Downside Protection

Here is a trade I would consider against 100 shares of AMZN at $430:

Hypothetical Overlay: Buy August 420 / 370/ 320 Put Butterfly for $10

Rationale:  pretty solid protection for almost 10% of a downward move if the stock was to go to $370 support while only risking $10. A disaster situation could occur of the stock went down significantly below the 370 strike but there is little chance of that and this hedge risk/reward profile is very realistic given only spending $10 on such a wild stock.

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