Trading Diary: Dec 7th to Dec 11th

by Dan December 13, 2015 4:38 pm • Commentary

Here is a quick recap of trades that we initiated, closed, or debated in the week that was Dec 7th to Dec 11th:

Monday Dec 7th:

Trade Idea – $COST Center

We took a look at the trade set up into COST’s fiscal Q1 report and concluded:

COST is clearly priced to perfection, but its been that way for the better part of the last year, despite headwinds of rising food prices, oil price deflation and the strength of the dollar. Investors appear comfortable with valuation given the stickiness of their model, strong execution and cost controls, in what appears to be a rapidly changing retail environment that has yet to inflict any damage on COST’s model.

We offered a Stock Alternative/Replacement (in lieu of 100 shares):

COST ($166.60) Buy the January 165/175/185 call fly for 3.00

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Tuesday Dec 8th:

Trade Idea – $FEYE in the Hole

We took a look at the sharp bounce from all time lows in FEYE and offered a couple strategies that we may use to play for a sustained bounce early in the new year.

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Wednesday Dec 9th:

Trade Idea – An $ADBE Reader

We took a look at the trade set up into ADBE’s fiscal Q4 results due out on Thursday and concluded:

ADBE has benefited in 2015 from investors desire to pay for growth at any price. Despite recently tempered guidance for next year, the stock remains bid with positive sentiment. I suspect that a tweak lower in guidance, or any signs that cloud signings are decelerating greater than expected then the stock could see the sort of reversal from highs we are getting today in Costco (COST) and yesterday in Southwest Airlines (LUV).

We offered a hedge for holders of long stock and also a long stock alternative.

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Thursday Dec 10th:

Trade Idea – $DIS: First Order of Business

We took a look at the trade set up in DIS as the company is set to release the massively anticipated Star Wars movie next Friday, as the stock approached what we deemed to be key technical support.  We offered at long stock alternative for those who think the movie’s release could catalyze a move back to the prior highs n the next month.

DIS ($110.75) Buy Jan 100 – 115/120 call spread risk reversal for 35 cents

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Friday Dec 11th:

Trade Update – Rolling $IWM Dec Put Spread

With one week to expiration and the put spread now through our long strike, we decided to take some risk off of the table and roll our bearish view lower with less risk into next week’s FOMC meeting:

ACTION – Sold to Close IWM ($112.80) Dec 115/105 put spread at 2.80 for a .30 profit
New Trade: Bought to Open the IWM ($112.80) Dec 112/107 put spread for $1.10

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Trade Update – $XLI Dec Put Spread

We offered some trade management for an existing bearish trade in the Industrial Sector etf, the XLI, which expires this coming Friday as it approaches our long strike.

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Trade Idea – $XLU: Utility Player

We continue to think the risk reward being long the utility sector is attractive as the sector has been weak into the expected Fed rate increase.  Its our view that a rate increase will be matched with a very dovish statement and investors will once again look for defensive sectors like utility that have no exposure to a strengthening dollar with 100% of revenues from US and a very healthy yield of about 4%.

We decided to roll down a prior bullish bet:


-Sell to Close XLU ($41.80) Jan 43 call at .30

-Buy to Open the Feb 42 call for 1.00

New position: Long the XLU Dec 44/ Feb 42 call calendar for 1.20

We expect the Dec 44 call we are short from the prior roll to expire worthless, and then we will look to spread the Feb 42 call, or turn into a calendar again.

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Watch our discussion from on utility stocks on Friday’s Options Action on CNBC: