Trading Diary: Nov 2nd to Nov 6th

by Dan November 8, 2015 7:59 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was Nov 2nd to Nov 6th.

You may have noticed a new post category named Trade Ideas during Q3 earnings season.  Regular readers know that we have a process for evaluating potential trades. On most instances our work yields a directional bias for a specific trade set up, but we also know that readers may have an existing position in the underlying, or use our inputs to arrive at their own conclusions.

Historically we’ve divided trade posts into two categories New Trades and Name That Trades, the first being what we are trading, and the latter what we are considering, or we think would make a useful overlay to an existing position. Henceforth we’ll be combining these into Trade Ideas that will contain both. The reason for the change in nomenclature is that we’re doing work from multiple perspectives and recognize that our subscribers have very different needs and expectations. A good example is an earnings preview of a stock. We may feel that we want to express a directional view, but we know that many of our readers may already be long the stock and are looking for a hedge, or a way to add yield or leverage or merely a long stock alternative. Within that post we’ll be clear what we are trading and what we think are good trades for those with other intentions.  A typical example would be a post where we lay out a hedge, a stock alternative and/or a yield enhancement. We will clearly label those with the assumption that we do not have a position in that stock but many of our readers do. We’ll then clearly state if we are doing a trade by labeling that section Our Trade at the end of the post. With Our Trade we will continue to do follow ups on trade management of that trade, but we also will try to (to the best we can) revisit the trade ideas that we didn’t do ourselves but others may have. We feel this will make RiskReversal even more useful to our readers who often ask us for hedges and overlays to their existing stock positions and we put a lot of effort into those ideas as well but up to this point we haven’t done a great job of  emphasizing the importance of those trade ideas we don’t do ourselves. Organizationally this will be better as all the trade ideas will be on a single post and we’ll also list the hypothetical trade overlays and alternatives on a new centralized Trade Ideas page and try our best to follow up on those as well. (see that page here)

We want to reiterate that RiskReversal has never been a trade service. The trade ideas we detail are for educational purposes. We put a lot of time and thought into them. Following along with our defined risk trades (and learning from our successes and failures) is an important aspect, but equally important is learning how to use options to hedge, add leverage, yield or replace existing equity holdings in your own portfolio.  We welcome feedback from readers, and are happy to answer any questions about what we feel is a subtle change to the service that should yield more expansive trade idea content.


Monday Nov 2nd:

Anatomy of a Trade – $AAPL Picking

We took a look back at home some of the pre-earnings options trades we detailed have performed since the prior week’s report and the stock’s subsequent grind higher.

Read original post here

Anatomy of a Trade – $AMGN Stock Alternative

We took a look back at how a pre-earnings stock alternative has acted since the prior week’s earnings and the stock’s subsequent decline.

Read original post here


Tuesday Nov 3rd:

Trade Idea(s) – $TSLA: Electric Feel

Heading into TSLA’s Q3 report it was our view that a lot of recent bad news was in the stock and offered a few options trade ideas depending upon ones’s current positioning or directional inclination into the print.

Read original post here


Wednesday Nov 4th:

Trade Ideas – Facebook ($FB:) Taking a Poke

We took a look at the trade set up into FB’s Q3 earnings report, offered a long stock alternative into what could be a potentially volatile event:

Buy the FB ($103.75) Nov 100/110/120 call fly for 3.45

Rationale – This is an excellent defined risk trade that protects against a sharp decline in the shares (in lieu of the risk of long stock here) while targeting a an upside move. The premium paid has a breakeven slightly less than where the stock is trading, meaning it’s taking advantage of elevated implied vol into the print. The tradeoff for this defined risk is that if the stock moves sharply higher on the event the profits trail off above 110 and are gone at 116.55 (where the trade actually starts to be a loser). The probability of that happening isn’t high but moves like that did happen in AMZN and GOOGL so it is possible. But chances are a realistic move higher and this trade does well, while defining risk in the event of a sell-off. The profits wouldn’t be immediately realized (similar to the TSLA fly from yesterday) but it’s a good risk reward.

Read original post here

Trade Idea – $IBB: Biotech Bounce

Considering a short entry in the Nasdaq Biotech index

Trade Idea: Buy the IBB (337.50) November 340/320/300 put fly for 4.40

Read original post here

Trade Idea – $TWX: Looney Swoons

Considering calendars in TWX after the stock’s 10% decline post earnings as the result of weak forward guidance.  We offered one bearish leaning one bullish leaning depending on one’s directional inclination:

Bearish Directional:

Buy the Nov/Jan 67.5 put calendar for 1.25

Bullish Directional:

Buy the Nov/Jan 75 call calendar for 1.15

Read original post here


Thursday Nov 5th:

Trade Idea(s) – $DIS: When You Wish Upon a Death Star

We took a look at the trade set up into DIS’s hotly anticipated earnings report, offered trade ideas depending on one’s directional inclination or current positioning and concluded:

DIS shares trade very near a 10 year high on a trailing basis.  Prior to TWX’s guide down for 2016 earnings, like DIS, consensus estimates were calling for $5.60 a share.  TWX’s 6.25% guide down to $5.25 for 2016, as stated above has caused a 10% decline in the stock. If DIS were to similarly take a swipe at consensus eps, I would expect the stock to act very similarly to TWX, especially when you consider the stock has re-traced a good bit of the August move.  On the flip-side, a beat and raise, proving a slowdown at ESPN was a one time thing (for now) then the stock will easily re-test the prior highs as we head into the Dec 18th release of Star Wars.

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Friday Nov 6th:

Trade Idea – $XLV: Back to the Pharma

Considering bearish trade in large cap pharma and biotech stocks

Trade: XLV ($71.40) Buy the March 70/60 put spread for 2.00

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Trade Update: Closing $AMAT Call Calendar for a Loss

ACTION – Sold to close the AMAT (16.95) Nov6th Weekly/Jan 16 call calendar at .36 for a .12 loss

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Trade Idea – $FXE – Euro Trashed

Considering short biased, defined risk trade in the Euro

Trade Idea: FXE ($105.20) Buy Dec 105/100/95 Put Fly for $1

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Trade Idea – $EEM: Emerging Volatility?

Considering short biased defined risk traders in emerging market stocks into the Fed’s first expected rate increase in 9 years at their next meeting on Dec 16th

Trade: EEM ($35.30) Buy Dec 35 / 32 Put Spread for 70 cents

Read original post here

I detailed this trade idea on Friday’s Options Action on CNBC: