Here is a quick recap of trades that we initiated, closed, or debated in the week that was Aug 17h – Aug 21st:
It has been our view for months that the fairly extraordinary volatility in global risk assets would come home to roost in U.S. stocks. Up until this past week stocks had been been pinned in a fairly tight trading range. While some viewed this consolidation as healthy, it was coupled with what seemed to us to be a fairly routine loss of leadership at every step of the way with waning technicals and momentum. This past week saw the sharpest sell off in U.S. stocks since the Fall, and the largest single day losses in years for some indices. We used this weakness into Friday’s close to exit some bearish positioning. It is our strong view that the consolidation of the S&P 500 over the past 7 months has been anything but bullish, and Friday’s break below the low end of the range could signal that U.S stock’s are now in downtrend and it may make sense to sell rallies as opposed to buying dips, a habit that had become fairly comfortable and profitable for years!
Monday Aug 17th:
Name That Trade – $FB: Shooting For Par
Considered ways to play for a move back to $100, with defined risk.
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Name That Trade – In $HD
We took a pre-earnings look at the trade set up in HD and concluded and offered a couple ways to play depending upon ones current positioning or directional inclination:
The stock is crowded from a holding and investor sentiment standpoint, much like Disney (DIS) prior to its results a couple weeks ago. It faces similar valuation issues too. That said, it’s hard to find too many issues that could derail this breakout.
No matter what your view, options are very cheap for those looking to make a directional bet.
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Tuesday Aug 18th:
XRT ($97.18) Buy Sept 100 / 95 / 90 Put Fly for 1.75
The reversal in shares of TGT from its post earnings highs signaled to us that a few stocks in the sector have been masquerading a lot of bad performance.
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Name That Trade – $ADI: Forced to Touch Earnings Trades
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Wednesday Aug 19th:
Name That Trade – $MRVL At Your Surroundings
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Mike Khouw on $SHAK: When Options Prices Tell You a Stock is Likely to Fall
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Thursday Aug 20th:
Update: Sold to open the QQQ ($107.65) Sept 102 puts at .85
New position: Long the QQQ Sept 110/102 put spread for 1.15
As we have stated in the original trade post from late July, we would look to spread the Sept 110 puts when the QQQ tests its 200 day moving average. Which we did when it did.
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Action: Sold to close the SLB ($80) Aug28th 81/76 put spread at 1.55 for a $1 gain
The stock’s quick drop from $83 made the trade a quick winner this week. We decided to take the profit and move on.
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Name That Trade – $PYPL: Send Money
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Friday Aug 21st:
Update – Sold to close the QQQ ($103) Sept 110/102 put spread at $4.85 for a $2.85 profit on original put
We took the profit on this bearish position into Friday’s close as the near term selling seemed to get just a tad extreme. We are, and have been in the mindset that U.S. equities should not be immune to the volatility in other risk asset classes and that when the U.S. joins the party it could be the start of a global correction. At this point, on a very short term basis the U.S. stocks could be a tad oversold, but we will look to re-short on rallies.
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Update: COST ($139.30) Sold to close the Aug 140 puts at .70 for a 2.00 loss
We got lucky here that we were able to recoup some premium with hours to expiration. We were wrong on the direction of this trade almost from the get go and frankly we had written it off as a total loser.
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Action: Sold to close the MSFT ($44.90) Aug / Nov 45 Put Calendar at 2.15 for a .75 gain
The stock’s quick move to the strikes made this position quickly profitable. Rather than covering the short leg that expired on Friday’s close and rolling, we decided to take the gain and look for another re-entry with a short biased position in the name on a bounce.
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Action – Sold to close the LVS ($47.60 ) August 47.50 puts at .30 for a .70 loss
Similar to the trade in COST, we had written this one off as a total loss, but the stock’s quick move below our put strike on expiration made it possible to recoup some premium that we did not expect to ever see again.
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Update: Sold to close BA ($133) Sept 140 / 130 Put Spread at $5.20 for a $3 profit
IN early July BA screened as a stock that could be become vulnerable to the perception that increasingly volatility in China’s stock markets, weakness in emerging market economies and the strength of the dollar could wreak havoc on U.S. multinationals.
With the stock down 8% in just a few trading days, and our trade worth more than double what we paid for it, we decided to take the profit and move on.
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Name Those Trades: Get Your Good ‘Til Cancel Bids In $AAPL, $DIS
The quick sell off in the U.S. stocks late this week might have been telegraphed by the precipitous declines in prior market leaders like AAPL and DIS since their earnings reports, but for those looking for a attractive long entries in both stocks down more than 20% from their very recent highs, it could make sense to sell out of the money puts given the sharp rise in options prices. This post details some technical levels that we think could make sense to consider long entries in both stocks.
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Trades Expiring:
Note: There is a natural survivorship bias in our expiring trades. We take all of our winners off prior to expiry since we don’t take delivery of stock, which leaves only losing trades to report on expiry. You can see all of our trades reported on Our Trades page.
Expired Worthless:
Trade TJX ($66.60) Buy Aug 65 Put for 1.50
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Trade: LOW ($69.50) Buy Aug 67.50 / 62.5 Put Spread for .60
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