Trading Diary: July 6th – July 10th

by Dan July 12, 2015 7:57 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was July 6th – July 10th:  

Monday July 6th:

Name That Trade – AAPL Watch

It was our belief that China’s massive contribution to AAPL’s sales over the last year, up 70% in the qtr just reported could start to weigh on investor sentiment  With two weeks until the company’s earnings we looked at the implied move in the options market and suggested:

The implied move looks fair to cheap, considering that the stock has averaged 3.15% one day moves following the last 4 quarters, and 4.5% over the last 8 quarters. (The day of the company’s fiscal Q2 results on April 27th the implied move was about 4.5%.)

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Name That Trade – CMG: Burrito Loco

CMG got a little hate treatment from Barron’s which made us to take a look a stock that has been on our banned list for years.  While I would love to have a good reason to play for a breakdown below $600, I am going to be patient, and concluded:

Gun to my head right here with stock $605 I’d prob buy the July 24th 600/550 put spread for $15 to play for a break of $600, but it kind of feels like a press on the short side and makes sense to wait for a bounce if you agree with Barron’s and think that Q2 earnings will be the catalyst.

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Tuesday July 7th:

Trade Update INTC: Closing Half July 30 Puts for a Double

Action: INTC ($29.63) Sold to Close half of the July 30 puts at 1.08 for a .63 gain

Rationale:  with the stock at $29.63 the July 30 puts are worth more double what we paid and we are going to close half and leave the other half on as we have taken our risk off of the table.

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Trade Update JPM: Closing Half July Put Spread for a Double

Action: JPM ($65.33) Sell to Close 1/2 of July 67.50 / 62.50 Put Spread at $2.10 for a $1.10 gain

Rationale: The stock has since sold off 5% and the put spread that I bought for $1 is now worth more than 2x what I paid.  I am now going to take off half of the position and leave on the other half on but without any risk of a loss on the trade:

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Name That Trade – GLW: Gorilla in the Missed

Considering how to play for a move back to the 52 week lows at $17 after last week’s breakdown below low term technical support.

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Name That Trade – Tiptoe BIDU Doo

Considering BIDU’s next move after a test and hold at long term support.

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Trade Update $CAT: Closing July / Aug Put Calendar

Action: Sell to Close CAT ($82.44) July / Aug 85 Put Calendar at $1.10 for a wash

Rationale: At the time we thought the stock would find some support at $85 and then give us the opportunity to roll the calendar into a vertical in August.  Well the stock has declined almost 7% in the last two weeks and is now well below our strikes, placing the spread worth basically what we paid (the move today turned it from a slight winner into a wash). The risk here is the stock continues to decline and the bearish leaning trade becomes a loser from becoming long deltas. That would be the worst possible scenario in my mind. I got the direction and the thesis right, but the timing very wrong. I am now going to close the trade and not risk suffering losses and look to put an outright bearish trade on a bounce in the stock, if we get one.

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Wednesday July 8th:

Name That Trade – Waiting on AA

We took a look at the trade set up into AA’s Q2 earnings event.

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Trade Update $MSFT: Closing July Call Fly for a Wash

Action: Sell to close MSFT ($44.55) July 43/46/49 call fly at 1.40 for a 5 cent gain

Rationale:  At this point the trade is a defined risk bullish bet that the stock will be above $44.35 on next Friday’s close with losses of up to $1.35 between $43 and $44.35 and gains up to $1.65 between $44.35 and $47.65.  Given the volatility in global equity markets, and the relative weakness among large cap tech here in the U.S. I no longer feel this trade offers a good risk reward. At the time of the trade I expected, as most did, a compromise on Greek debt, and  did not expect a 35% decline in Chinese stocks. The risk environment has changed, and yet the trade is about break-even. No harm no foul.

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Thursday July 9th:

Name That Trade(s): Shopping List – HD, M and AAPL

Two U.S. retail stocks that could be immune to the external risks facing our economy, and our markets. And there has to be a level near term in AAPL that makes sense for a long entry following its earnings on July 21st.

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New Trade – COST Conscious

Trade: COST ($139) Bought to Open Aug 140/130/125 broken wing Put Butterfly for $2.70

I want to make a defined risk directional play that Cost is set to re-test $130 on the downside over the next 5 to 6 weeks (note we bought the 125 puts instead of the typical 120’s for the fly.

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New Trade: Re-Rated – PG

Trade: PG ($81.25) Buy July 31st weekly 81 put for 1.60

Next Move: On a near term move to $80 we will look to turn these puts into a vertical spread by selling the July 31st weekly 77 puts and reduce our premium at risk, and our break-even on the downside. Also long premium directional trades into events are tough, and as usual if we are wrong on the entry here we will look to cut our losses at half of the premium spent.

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Friday July 10th:

New Trade – BA Humbug

TRADE: BA ($144.50) Buy to Open Sept 140 / 130 Put Spread for 2.20

Rationale:  This trade is not only targeting the earnings event, but also the company’s exposure to global growth, which I suspect will become a theme amongst investors if Chinese stocks are unable to stabilize.

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Name That Trade: Shanghai Surprise – ASHR

Considering ways to fade the bounce in the Shanghai Comp using options listed here in the U.S.  Last week’s explosion in implied volatility makes long premium strategies severely challenged from a directional standpoint.

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