Trading Diary: Sept 21st – Sept 25th

by Dan September 27, 2015 5:34 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was Sept 21st – Sept 25th:


Monday Sept 21st:

Name That Trade – $TLT: Treasury Island

We took a look at the value proposition of owning U.S. Treasuries as a form of diversification at a time where they have become out of favor:

But if you believe as Burbank does, and that stuff is about to get real globally, then you want to own TLT at least as a form of diversification from stocks & commodities, and possibly as a hedge. $115 appears to be very decent near term technical support, but it may not get back there soon if equities re-test the lows from last month.

A defined risk way to get some long exposure in the TLT between now and December expiration. The risk here is that last week’s FOMC meeting was a headfake and the Fed will get Hawkish quickly. Which is one big reason to define risk. Here is the trade I am considering but not pulling the trigger on just yet:

Hypothetical TLT trade ($120.15) Buy Dec 120 / 130 Call Spread for $2.50

-Buy to open 1 Dec 120 call for 3.15

-Sell to open 1 Dec 130 call at .65

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Name That Trade – $NFLX $TWX: Stream Dreaming

If we were playing would you rather, we’d be far more inclined to own TWX marked down 25% in less than 2 months, with a $57 billion market cap and $28 billion in expected sales as opposed to NFLX with a $42 billion market cap with a little less than $7 billion in expected sales. As for NFLX, we conclude:

The stock makes little sense to me as I don’t find their original content compelling, think their library of non-original content is piss poor and their delivery mechanism is run of the mill. But I am also hard pressed at the moment to put my finger on a catalyst that would cause the stock to implode. Last night’s showing at the Emmy’s shows a potential crack in the foundation, but I suspect higher costs associated with their very important international expansion and some sort of subscriber blip in the U.S. when they report their Q3 results on October 14th would do the trick, But trying to pick a top in NFLX has been a fools errand. The stock has rallied 17.5% on each day following its last three earnings reports!!

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Tuesday Sept 22nd:

New Trade – $INTC In Slide

Its our view that semiconductor stocks have not seen their bottom for this cycle and INTC’s bounce of more than 10% off of its recent lows in Aug offers a good defined risk short entry into what should be weak Q3 results and poor forward guidance in mid Oct:

Trade: INTC ($28.65) Buy Oct 28.50/25.50 put spread for .75

-Buy to open 1 Oct 28.5 put for .98

-Sell to open 1 Oct 25 put at .23

Rationale: short dated options prices are elevated given the market environment, and the upcoming event. But a retest of the August lows in the SPX would likely cause a massive spike in implied volatility across the board. We may be in the exact sort of market where for the time being long premium strategies offering better risk reward than short premium. Especially as we head into Q3 earnings season and all of the uncertainty surrounding the FOMC’s next rate decision at the end of Oct.

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Name That Trade – $BBBY: Blood Bath and Beyond

We took a look at the trade set up into the company’s fiscal Q2 earnings and concluded:

With vol this elevated, options strategies targeting the event should at the very least consider spreads and possibly short premium all together. Depending on your directional inclination, we might consider targeting the implied move and sell short dated options.

We offered up two trade ideas which did this depending upon one’s directional inclination.

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Wednesday Sept 23rd:

Name Those Trades – PC Culture: $INTC, $HPQ, $MSFT

We took at look at the state of the PC supply chain from the top down, and aside from the potential for some seasonal strength near term, it looks downright dismal when one considers the headwinds to PC growth from both a geographic and product standpoint.

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Name That Trade – $NKE: Swoosh?

We took a look at the trade set up into NKE’s fiscal Q1 earnings and concluded that at the money options appeared dollar cheap for those looking to express a directional view into the print.

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MorningWord 9/23/15: Fire in the Hole – $FEYE

FEYE could be interesting with a 2 handle, which could be coming to a theater near you if last week’s price action (down 13%) was any indication of things to come.

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Thursday Sept 24th:

New Trade – $UAL: Experiencing Turbulence

It’s our view that the airline industry could be properly screwed no matter what crude oil does between now and year end. Why? If Crude goes higher for the wrong reasons (think not a reflation in global growth or increased demand, but supply issues) then that’s a headwind for airlines. But if crude stays here or goes lower it will because (in my opinion) the global economy is trapped in a deflationary cycle and emerging markets will be exporting their deflation to our shores. This will keep the dollar bid, and that’s a nasty combination for airlines. I see little upside either way.

We want to finance the near the money put in November that catches earnings by selling a lower strike in October. The vertical nature of the calendar spread means more short deltas to start (-20 deltas) therefore it is more of a bearish bet than the more neutral nature of a straight 55 strike calendar. This trade does best with a slow creep towards 52.50 in the next few weeks.

Trade: UAL ($56.40) Buy the Oct 52.5/ Nov 55 put diagonal calendar for $2.25

-Sell 1 Oct 52.5 put at .80
-Buy 1 Nov 55 put for 3.05

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Friday Sept 25th:

Name That Trade – $AAPL Sauce

Considering disaster protection for long holders of AAPL shares:

Hypothetical Trade against 100 shares of AAPL at $115:
Buy the AAPL ($115) Dec 130/100 collar for $1

-Sell to open 1 Dec 130 call at 1.50

-Buy to open 1 Dec 100 put for 2.50

Rationale: This trade adds protection below long term support during times of uncertainty in the market. This is only for those willing to sell the stock near previous highs.

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Name That Trade – $DIS: Sith Kabob

Considering long stock alternatives for existing longs or those who might consider a long entry eyeing Star Wars release on December 18th:

Hypothetical Trade: DIS ($101) Buy Dec 90 / 110 Risk Reversal for a 20 cent credit

-Sell to open 1 Dec 90 put at 1.65

-Buy to open 1 Dec 110 call for 1.45

Break-Even on Dec Expiration:

Profits: of 20 between 90 and 110, gains one for one above 110

Losses: below 90, put the stock and lose one for one

Rationale: This is NOT a trade we are initiating to express a bullish view. But for those who are long, this could make sense to replace some existing long exposure. The options market is suggesting that the 90 put and the 110 call have about a 20% chance of being in the money on Dec expiration, so the likely hood of big gains or losses are not great, but the strategy should be considered for the purposes of mitigating potential risk.

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Name That Trade – $WYNN: Catch a Falling Knife Edition

For those who like the idea of being contrarian after WYNN’s 75% decline from its all time highs in March 2014, it makes sense to take advantage of elevated implied volatility, while defining your risk, offering a wide break-even on the downside and offer leverage to a sharp reversal. We are not ready to do so just yet, but we will continue to monitor the set up.

Hypothetical Trade: WYNN ($59.25) Sell Jan16 50/45 Put Spread at $1.20 & Buy Jan16 80 call for $1.20 – Own Put Spread Risk Reversal for even money:

-Sell to open 1 Jan16 50 put at 3.15

-Buy to open 1 Jan16 45 put for 1.95

And use the $1.20 premium received for selling the put spread to:

-Buy to open 1 Jan16 80 call for 1.20

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