Trading Diary: Aug 10th – Aug 14th

by Dan August 16, 2015 8:17 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was Aug 10th – Aug 14th:

Monday Aug 10th:

Name That Trade – $GDX: I Ain’t Sayin’ Squeeze a Gold Digger

Over the last four years the Gold Miner’s etf has had a counter trend rally in each year from 2011 to 2014 that was between 35 and 41% from a 52 week low.  With the index trying to consolidate at all time lows we are looking for ways to play for a bounce.

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Tuesday Aug 11th:

New Trade – An Alpha Bet in $GOOGL

Trade: GOOGL ($700) Buy Sept 700 / 650 / 600 Put fly for $12

We were surprised that investors reacted so positively to the company’s announcement that they were reorganizing their corporate structure that we feel is more confusing.  We like the idea of playing for a pullback in the shares over the coming weeks back to the level where the stock rallied from, around $650.

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Name Those Trades – $BABA Booey

We took a look at BABA into its Q2 print and concluded:

Expectations are obviously very low heading into the print, and my sense is that any bounce after the results will be sold as investors quickly turn their focus to 1.4 billion shares that come off lockup on the one year anniversary of their IPO on Sept 18th.

We are still in the camp that it would be perfect bookend to what we thought was a BS ipo for the stock to round-trip the whole one year move into its anniversary.

We offered a few ways for investors use options to hedge their existing holding, replace existing holding with calls or make an outright bearish bet.

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Name That Trade – Macy’s ($M) Parade

We took a look at Macy’s prior to their Q2 print, offered a couple ways to play, and concluded:

The company has on a couple occasions this year lowered expectations for the full year, calling 2015 a “transitional” period as they invest technology, absorb the Mercury acquisition and address the challenges of a weak consumer.  There was a time earlier in the year that U.S. retailers with little to no U.S. dollar exposure like Macy’s, Kohls (KSS), Dillards (DDS) and Nordstrom (JWN) were all perceived to be beneficiaries of a U.S. consumer who is paying less at the pump.  All of these stocks are well off of their recent highs, while M & JWN on the higher end down the least from their 52 week highs.  I suspect M would be acting much worse without the activist involved.

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Wednesday Aug 12th:

Name Those Trades – $CSCO: Chuck Foolery

We took a look at Macy’s prior to their Q2 print, offered a couple ways to play, and concluded:

CSCO is a relatively cheap large cap tech stock, trading 12x expected fiscal 2016 earnings growth of 5%, have a 3% dividend yield, a monster share buyback and a stellar balance sheet with 39% of their $140 billion market cap in cash (24% net of debt). Recently long time ceo John Chambers passed the baton to Chuck Robbins, who orchestrated a massive shakeup in the C-level suite over the last few months.

The big question CSCO investors have to ask themselves is whether or not the new CEO will lower the bar for forward guidance and set up for a series of beats in what could be an increasingly challenged environment for sales to carriers, businesses and in emerging markets with a backdrop of a strong dollar (last year 40% of their sales came from outside North America). Did management agree to have Chambers go out on a high note knowing there were headwinds ahead? Possibly, which makes the management changes executed by Robbins look like they could provide even more cover to lower forward outlook

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Trade Update – $SO: Closing BuyWrite for a Gain

With the stock up above our short call strike with 7 trading days to expiration our gains are capped to the upside but obviously not to the downside, after such a nice short term gain we decided to take the gain and move on.

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Name That Trade – $SPY: Reconsidering Portfolio Protection

We think it is time to start considering portfolio protection using index etf options:

Regular readers know that we think the best case scenario for U.S. stocks is that they remain in a holding pattern as we see little by way of positives that will break us out to new all time highs, the path of least resistance is no longer higher for U.S. stocks macro conditions appear to be exploding in all different directions causing investors to shoot first and ask questions later. Which we think should continue and likely cause increased equity vol in the coming months. If 50% of S&P500 stocks are in correction territory as was reported by CNBC earlier, and the index is holding onto a 1% gain on the year, and down only about 3% from its all time highs, then we suspect that we could be on the precipice of the first 10% plus decline in the SPX since 2011.

For those who don’t want to chase their tails buying and selling their large cap equity holdings, you could consider protection in the SPY:

Hypothetical Trade: SPY ($208) Buy Oct 205 / 190 Put Spread for $3

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Thursday Aug 13th:

New Trade – The $CSCO Mid

With CSCO’s results and guidance out of the way, we think the stock could be range bound in the coming month:

Trade – CSCO ($29) Buy the September 31/29/27 put fly for .85

That lack of direction has recently resulted in a convergence of its moving averages around that $28 level and makes it a good candidate for a range trade and possible defined risk income play…

We want to center the trade at that $29 level. We’d prefer fading this earnings move a bit but the strikes in September are a dollar wide and centering the trade at 28 gives us a breakeven just too tight to where the stock is today. With the 29 center the trade starts out in the money with a breakeven higher than what should be resistance if the stock continues higher to $30. A breakout above 30 seems to be the major risk on this trade. But even if it went sideways or even slightly higher the trade would still be profitable.

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Friday Aug 14th:

Name That Trade – $CRM: Stealing Product

With four trading days to the company’s Q2 earnings we took a look at the implied move over the  next week that is a little more than 9% over that period vs the 6.2% implied move the day of CRM’s Q1 results back on May 20th.  We will be sure to circle back prior to results on Thursday night.

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Name That Trade – $TSLA: Whistling Outside the Stash House

We remain cautious in the near term on TSLA for a whole host of reasons, primarily the potential for execution snags as the company is set to release their Model X suv in the coming months.  For those who are long, or think the stock makes new all time highs in the coming months we like zero cost risk reversals in place of stock in what could be a volatile time for the stock.

Hypothetical Stock Replacement strategy in lieu of 100 shares of TSLA at $243:

Buy the Jan16 200 / 290 Risk Reversal for even money

-Sell to open 1 Jan16 200 put at $10

-Buy to open 1 Jan16 290 call for $10

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Watch here from Friday’s Options Action on CNBC: