Trading Diary: Oct 12th – Oct 16th

by Dan October 18, 2015 6:39 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was Oct 12th to Oct 16th:

Monday Oct 12th:

Name That Trade – $IBM: Big Blues

With the news of the day that EMC agreed to be acquired by DELL in a debt driven convoluted deal structure we wanted to check in on another potential acquirer of enterprise hardware or services, IBM, a week before their Q3 results.

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Name That Trade – $GDX: Messin’ With the Gold Diggers

Considering short entries after a fairly sharp bounce of late:

We’d like to play for a move back to $14 in the coming months, but at a better entry, closer to $18. With vol high, short premium trades make sense. We’ll keep our eye on the etf and ideally place an in the money fly or similar at our preferred entry, targeting a move back towards $14.

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Tuesday Oct 13th:

New Trade – $INTC: Chips & Dip?

New Trade: INTC ($32.25) Bought Dec 32/28 Put Spread for $1

Its our view that the weak enterprise hardware demand will ultimately be the driver for semiconductor stocks, not the merger frenzy that they appear to be in.   With our Oct put spread expiring worthless, we wanted to roll out the bearish view prior to Q3 earnings.

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Name That Trade – $JPM: Cut to the Chase?

We took a look at the set up into Q3 results and concluded:

The volatility in August could have a couple potentially negative implications for a bank such as JPM. First and foremost from their trading desks. Investors will get a clear indication of just how well the bank was positioned for the first real vol shock in years, that wreaked havoc on many of their active trading clients. Additionally, for the balance of Q3, capital market activity saw a marked drop from Q2. We would be surprised if JPM suffered an unforeseen, out of the ordinary trading loss, but we would not be surprised if results are weaker than unexpected (which is likely priced into shares at current levels) with guidance that reflects uncertainty about the Fed’s plan for interest rates at their next and last two meetings for 2015.

The best trade on the board could be calendars, depending on your directional inclination. Selling weekly options at the implied move, and buying longer dated options of the same strike.

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Wednesday Oct 14th:

Trade Update $XLF: Rolling Oct Puts Out & Down

Action: Sell to Close XLF ($22.90) Oct 23 puts at .20 for 5 cent loss, and
New Trade: Buy to Open XLF ($22.90) Dec 22/20 put spread for .30

With just a couple days to Oct expiration we need to make a decision about cutting loses on the Oct position as the set up could be a fairly binary for the existing position, so we decided to roll out of Oct and buy longer dated put spreads.

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Trade Update – Closing $TSLA Dec put spread for a profit

Action -Sold to close the TSLA ($220) December 230/180 put spread at 18.00 ($5 profit)

After a very sharp near term decline it was our view that the stock was trying very hard to find some footing at a fairly important technical support level of $220.  Our thesis has not changed that TSLA is likely to face some execution challenges in the coming quarters as they look to ramp production of their Model D, S & X, build out their giga-factory and launch their stationary storage product.  We would be sellers on rallies.

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Trade Update $PG: Closing Oct Buy Write for a loss

Action: Sell to close 100 Shares of PG at $74.30 for a $1.70 loss less 39 cent premium gain of short calls.

Given the WMT news this morning, and the stock’s 9% losses, PG no longer has the same beaten up feel to it that it did in early August. How low is low enough when the fundamentals are weak? Your guess is as good as mine. I am going to cut the loss in the stock and place a one cent bid in the short calls to close.

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Name That Trade – $NFLX: House of Cards

We took a look at the trade set up in NFLX prior to Q3 results and concluded the following:

Valuation is out the door. It is not a reason to sell the stock, and certainly has not been a reason to avoid owning the stock. I would note that the stock has gained more than $25 billion in market cap so far this year, a year that the company is only expected to gain $1.3 billion in sales year over year, a 24% growth rate, while earnings are supposed to decline by 45% (albeit from a very low base). The company is spending on original content as it’s imperative to maintain their domestic subs. They are also actively expanding overseas where all of their future growth is expected. In the quarter NFLX is expected to add 1.15 million net domestic streaming subs and 2.4 million net new international streaming subs. This on a base of 42 million in the U.S. and 23 million internationally.

The bear case (excluding valuation) is fairly simple. Competition, and there is a ton coming on line for streaming services. I suspect when Apple finally gets their act together on some sort of video subscription service through iTunes, then the short is on. In the meantime, I think there has not been enough investor focus on NFLX’s emerging original content competition which was evident in the Septembers Emmy awards. was this year’s newcomer, which clearly stole some of NFLX’s thunder.

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Thursday Oct 15th:

New Trade – $AMAT: Early Bird Gets the Worm?

Merger mania in the semiconductor space got me thinking about the following:

If nearly every semiconductor company is going to link up with a rival, then the logical progression would be for their customers to do the same.

The companies that make the equipment that make semiconductors (AMAT & KLAC) will most definitely need to consolidate. Earlier in the year AMAT and Tokyo Electron called off their planned merger, and AMAT has been in the tank ever since.

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Name That Trade – $NTAP On Tap?

With DELL taking out a ton of debt to buy EMC, it got us thinking about other potential targets in the enterprise storage space who could be targets of IBM, CSCO or ORCL, our thought was NTAP:

The stock is cheap, very cheap ex-cash, but earnings and sales growth has been very hard to come by of late. Sentiment could not be worse as there are only 6 Buy ratings on the stock, 26 Holds and 7 Sells, with an average 12 month price target of $33.77 (stock trading $33.66 as I write). That’s rather unheard of for a stock of this size with such a solid balance sheet. This is not a stock I would want to own as it appears the fundamentals have been weak and expected to get worse before they get better. But in the world we live in where big old stodgy tech companies are looking to lever up and merge, I suspect there is a ton of costs to be cut at NTAP that could increase profitability once combined with a larger entity.

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Friday Oct 16th:

New Trade – $XLI: City of Industry

GE, the largest component in the XLI has masked a lot of poor performance from its peers. I fully expect most earnings and guidance from components yet to report to resemble HON more than GE. A lot of what’s going on with GE is stock specific.

I want to make a defined risk bearish bet over the next couple months that the XLI will re-test its August lows:

Trade: XLI ($52.40) Buy Dec 52/48 put spread for $1

Read original post here and discussed on Friday’s Options Action on CNBC:


New Trade – $IWM: Tip of the Small Cap?

We have been trying to be patient for a short entry in the small cap stock etf, and the relative underperformance of late, coupled with what looks to be very poor technicals led us to finally pulling the trigger with the etf just below the uptrend that has been in place since early 2009.

Trade: IWM ($115.25) Bought Dec 18th 115/105 put spread for 2.50

Read original post here and discussed a similar trade (same expiration and long strike, but moved down the short strike as this was billed for viewers as more of a hedge) on Friday’s Options Action on CNBC:


Trade Update – Closing $UAL Diagonal Put Calendar for a Wash

Action – Sold to close the UAL ($55.90) Oct 52.5/Nov 55 diagonal put calendar at 2.34 (9c profit)

We had some choices to make with the short leg of this trade rolling off, this after trading the position poorly on the prior week’s move below the short strike.  We decided to close rather than to roll out this bearish view.

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Trade Update $PYPL: Closing Call Calendar for a Gain

Action: Sell to close PYPL ($34.30) Oct/Jan 35 call spread at $2.34 for a 1.09 gain

With earnings expected on Oct 28th we think it makes sense to book the profit, but keep a close eye on the story with a possible long entry back closer to $30.  Our bullish thesis has not changed.

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