Trading Diary: June 15th to 19th

by Dan June 21, 2015 6:42 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was June 15th to June 19th:


Monday June 15th:

Name That Trade – $FDX: See the Arrow

We took a look in front of the company’s Wednesday’s fiscal Q4 results and concluded:

I am generally unexcited about playing FDX for a breakout to new highs as I suspect the weakness across the Transports makes FDX a bit of an outlier. And their 28% revenue exposure outside the U.S., despite the slight decline in the Dollar over the last couple months, could be offset by the rise during the same period in their largest input cost, fuel.  I am inclined to fade the move to the upside, and lean slightly lower.

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Name That Trade – $ORCL in the Arena

In front of Wednesday’s fiscal Q4 results we walk through a large bullish trade that we observed in the market:

When the stock was $43.76 there was a large bullish trade in July 24th weekly expiration,. A trader sold to open 11,500 July 24th 42 puts at 71 cents and bought to open 11,500 of the July 24th 44.50/ 47 call spreads for 71 cents.

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Tuesday June 16th:

Name That Trade – $GRMN: Recalculating

With the much anticipated Fitbit IPO coming in the next day we thought we would take a look at beleaguered wearable competitor Garmin.

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Trade Update – Oh $DE: Closing put fly for a double

ACTION – Sold to close the DE ($92) June 95/91/87 put fly at 2.35 for a 1.25 profit

With days to June expiration and the trade worth more than a double the risk reward was not great to try to wait for the max payout.

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New Trade – $ADBE Photo Stopped

Trade: ADBE ($80.35) Sell the June 77.50/75 – 82.50/85 Iron Condor at 1.25

Prior to ADBE’s fiscal Q4 results we took a look at the trade set up and concluded:

into the print I would expect it would take a meaningful beat and raise for the stock to breakout to the tune of $4 to the upside, while I suspect it would be far easier for the stock to achieve that move to the downside if the company would missed modestly reduced guidance from March.  We will take a closer look tomorrow prior to the close, and are considering trades that fade the implied move, with a slight downside lean.

It was our belief that the risk reward of this trade makes a lot of sense,. We’re able to fade the move while risking the same amount as the potential that can be made if the stock underperforms its implied move.

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New Trade – $MSFT: Surface Friction

Trade: Buy the MSFT (46) July 43/46/49 call fly for 1.35

Looking at MSFT’s year to date range, and upcoming catalysts, it was our belief that the stock could remain rangebound in the coming weeks, prior to earnings and the stock set up nicely for a short premium range trade:

The next identifiable catalyst will be MSFT’s fiscal Q4 results scheduled for July 21st after the close. With the stock at $46.15 the July 24th weekly 46 Straddle (the call premium plus the put premium) is offered at $2.86.  If you were to buy that, and thus buy the a greater than expected move between now and and July 24th, you would need a move above $48.86, or below $43.14, which actually seems fairly reasonable if you consider the prior two earnings moves.  But in a market that seems opposed to large movements from the top down, it has been an incredibly difficult way to make money on a directional basis owning premium.

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Wednesday June 17th:

Trade Update – Closing $ADBE Condor for a Gain

Action: ADBE ($78.65) Buy to Close the June 77.50/75 – 82.50/85 Iron Condor for .25 for a $1 profit

With results out of the way, the stock is down only 1.6%, far less than the implied move of 5%, and the the short premium trade was a quick winner. With almost 3 trading days to expiration, and the Fed announcement coming that afternoon we thought it made sense to take the trade off for a profit and move on.

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Name That Trade – $ORCL

We considered a call calendar that matched the implied move in the stock that was also the 52 week highs.  We lacked a bit of conviction, and did not pull the trigger for more than one reason.

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Thursday June 18th:

Name That Trade $BBRY: Berry Picked Over

My friend and long time BBRY bull Brian Kelly got me thinking about BBRY again after he laid out the bull bear debated on CNBC’s Fast Money, this was my conclusion after taking my own detailed look at the set up for the stock, this is how I would play from the long side, despite having little interest in doing so:

Gun to my head, and its not, If I had to play I’d likely consider risk reversals, selling a downside put and using the proceeds to buy an upside call.  At this point I only see the stock going up above $12 on a takeover, which is a low probability event. For instance with the stock at $9.13 you could sell the Dec 7 put at .30 and buy the Dec 12 call for .35, this trade costs you 5 cents. Worst case scenario the stock is at 7 or below and you are put the stock, best case its above 12 and you have long exposure, and between a very wide range of 7 and 12 u lose a nickel.  I am just not that interested at this point.

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Name That Trade – $RHT: Tip of the Hat, or Wag of the Finger?

We took a look at the stock in front of their fiscal Q1 results and concluded the following:

with the stock butting up against 15 year highs I suspect it would take a material beat and raise for the stock to breakout in line with the implied move, while the disappointments this week from ADBE, which was also right below 52 week highs, and ORCL last night suggest that investors might have been a tad to optimistic about enterprise demand for software of late. I would also add that the key culprit for ORCL’s disappointment was adverse currency affects, which RHT will not be immune to as 35% of their sales come from overseas.

As I felt with ADBE earlier in the week, expected growth does not justify the valuation in RHT, and I am hard-pressed to come up with a short list of potential acquirers who could or would buy RHT for a 30% premium to current price at about 10x sales, close to $20 billion.

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Trade Update – $GPRO: Closing June Put Fly For A Wash

Action: GPRO ($58.22) Sell to Close June regular 59/55 1×2 put spread at $1

With about a day and a half to June expiration, and the stock just below our long put strike, we concluded:

the trade becomes fairly binary, meaning if the stock is above 59 tomorrow, then the probability of at least a small loss, and the potential for a full loss increase every minute.

Now with the trade break-even I am going to close as the risk reward of holding the position until tomorrow quickly becomes worse than a coin flip.

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Trade Update – $GOOGL: Closing June / July Call Calendar

Action: Sell to Close GOOGL ($556.60) June / July 570 Call spread at $6.70 for a 70 cent gain.

After looking at the weekly term structure in July for Google options it became clear that market makers no longer expected July regular expiration to catch Google’s Q2 earnings, which is what the trade was originally designed to do back in early May. We decided to close for a small gain.

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Friday June 19th:

New Trade $JPM: Fading Breakout

Trade: JPM ($68.20) Buy July 67.50 / 62.50 Put Spread for $1

With the potential for volatility surrounding the Greek debt situation, and JPM’s massive out-performance of peers, and the broad market we concluded that long premium short biased trades targeting JPM’s Q2 earnings looked attractive.

With an eye on earnings and the thought that the stock may discount good news, and my belief that fading single stock upside breakouts may be a good trading strategy until the broad market confirms this trend, I want to make a defined risk bearish bet that JPM pulls back to just above its recent breakout level.

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Name That Trade – $TWTR: Building a Bird’s Nest

I have my positions in TWTR (long stock and call spreads), but for those kicking the tires, and considering long stock alternatives at current levels, we outlined the following trade:

TWTR ($36) Buy Dec 32 / 42 Risk Reversal for Even Money

-Sell to open 1 Dec 32 put at 2.50

-Buy to open 1 Dec 42 call for 2.50

This trade structure servers as stock alternative and provides a wide range of break-evens on both the up and the downside on expiration, but prior will have mark to market losses as the stock moves closer to the short put strike, and gains as the stock moves closer to the long call strike.

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Trade Update $WMT: Closing June Call fly for a Loss

ACTION – Sold to close the WMT ($73.15) June 73/75 1×2 for .15 for a .60 loss

With an eye towards not being exercised if the June 73 calls closed in the money, we closed the trade and lock in the loss.

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