Trading Diary: Oct 19th to Oct 23rd

by Dan October 25, 2015 6:05 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was Oct 19th to Oct 23rd:  

We did not do a heck of a lot of trading last week. The continued upward trajectory in equities makes little sense to us.  We see little reason to initiate new shorts, but admittedly have done a very bad job of managing losers this month as the S&P 500 has been in the midst of a sharp 10% rally.

Monday Oct 19th:

Name That Trade – $IBM: Blue’s Clues

We took a look at the trade set up into IBM’s Q3 results and concluded:

Barring some sort of corporate strategic action I see little reason to buy a stock like IBM at this stage of the game.  We are in a market where you stick with longs that are working and sell rallies on stocks that have shown relative weakness. IBM falls into the latter group.  We are not of the mindset to press a short like IBM so far below its downtrend, but also recognize that a miss and guide lower and the stock is probably right back in the low $140s.  If the quarter and guidance are in line and the company were to announce some sort of strategic corporate action than the stock is in the high $150s.

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Name That Trade – $UTX: Industrial Devolution

We took a look at the trade set up into Q3 earnings and concluded that no matter what your directional inclination is, options prices appeared cheap into the event.

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Tuesday Oct 20th:

Name That Trade – $MCD: A Ketchup Trade?

We took a look at the setup into MCD’s Q3 results and its analyst meeting of the same day.  While we were hesitant to get long in front of the event, we recognized that the stock’s massive under-performance to the S&P 500 since the 2009 makes the potential for a catch-up trade attractive on the slightest bit of good news:

One trade we might consider (stock reference $104) on a move lower would be selling the March 90 Put at 1.50 and buying the March 110 call for 2.20, with a net debit for the bullish risk reversal of 70 cents. On March expiration you would be put the stock at $90 (really $90.70 as you have to add the premium paid for the trade), down about 13%, but have upside above $110.70 (the long call strike plus the premium paid).

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Name That Trade – A Couple of $YHOOs

We took a look at the trade set up into YHOO’s Q3 results and concluded:

Like most others, we have little faith that Marissa Mayer will be able to meaningful compete with the likes of Facebook (FB) and Google (GOOGL) given Yahoo’s current assets and what seems to be the never-ending exodus of high level employees. So the big concern is what will they do with the cash? Share-buybacks are great and they have been doing a lot of it, but the company will likely once again be the target of activists if they don’t act fast. I suspect they make a large, and questionable trans-formative acquisition (if they are successful with their tax free spin off of BABA as planned in the fourth quarter.) Investors are unlikely to look kindly on such an event.  I also have to think Marissa Mayer is sick and tired of being the punching bag for the financial & tech press and investors. It’s my guess that YHOO will be dramatically different next year than it is today.

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Wednesday Oct 21st:

Name That Trade – $SMH: Shake My Head

In the wake of two new semiconductor deals we took a look at some unusual put activity in the sub-sector’s etf.

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MorningWord 10/21/15: – $KSS and Tell

Considering the bull case for KSS.

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Thursday Oct 22nd:

Name That Trade(s) – $MSFT: A Window Into Tonight’s Earnings

We took a look at MSFT prior to reporting its fiscal Q1 results and concluded: “Its been my view to sell the stock in the high $40s and buy in the low $40s for the last year. But I get that the recent price action in large cap tech suggests that maybe we are looking past recent headwinds to earnings growth.”

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Name That Trade(s) $AMZN: Earnings…or Lack There Of?

We took a look at the trade set up into AMZN’s Q3 results.

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Name That Trade: I $SPY With My Little Eye

Its our view that short dated options prices are cheap:

As we look at the SPX at 2 month highs, nearing massive technical resistance in the index at 2050, eyeing next week’s Fed meeting, and the following week’s Oct jobs report on November 6th, it could make sense to consider what is becoming increasingly cheap short term protection.

The options market is implying about a 2.2% move in either direction in the SPY (the etf that tracks the SPX) between now and November 6th.  That seems pretty cheap when you consider the potential movement around the upcoming events, and of course the SPX’s 9.25% rally from the Sept 29th lows.

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Friday Oct 23rd:

Name That Trade – $CSCO: Robbin’s Hood

Considering a breakout trade in one of the few mega-cap tech stocks yet to make a new 52 week and multi-year high:

Potential Trade: CSCO ($29.20) Buy Feb 30 call for $1

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Watch my discussion from Friday’s Options Action on CNBC:

Name That Trade – $XRT: Retail Wagging the Dog?

Considered the reason for the massive under-performance of U.S. retail stocks given the strength in consumer discretionary stocks and the recent bounce in the S&P 500.

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Name That Trade(s) – $PANW: Insecure Techncials

Despite PANW’s 30% gains on the year, the stock is down 20% from its all time highs in July, and now sitting on key technical support at $160.  We took a look at the trade set up as some of its peers seem to be making a run at 52 week lows.

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