Flipping the Calendars – UAA, XRT

by CC April 28, 2017 12:01 pm • Trade Updates

We’ve detailed a couple of calendar vertical spreads on the site that have their front month expiring today so let’s update those now. This structure is a favorite of mine when fairly convicted on direction because it increases the ways in which money can be made over the lifetime of the trade as short premium is rolled and adjusted against the longer term view. First, let’s look at a trade idea into yesterday’s Under Armor earnings (UAA):

Stock Alternative in Lieu of 100 shares of UAA (19.75)

Buy the April28th 22.5 / July 20 vertical call calendar for 1.20
  • Sell 1 April28th 22.5 call at .20
  • Buy 1 July 20 call for 1.40

With UAA now 21.70 this trade is worth about 2.10. The April28th 22.50 calls expiring today are worthless and that short premium leg of this trade should be rolled.

ACTION – Sell the UAA July 25 calls at .25

New position: Long the UAA July 20/25 call spread for .95 (currently worth 1.90)

This trade now breaks even at 20.95 in July and can make up to 4.05 if the stock is at or above 25 on July expiration.

Next, let’s check in on an XRT (retail) vertical calendar, from April 12th:

Buy XRT ($42.10) April 28th weekly 40.5 / June 42 calendar put spread for $1.20
  • Sell to open 1 April 28th 40.50 put at 20 cents
  • Buy to open 1 June 42 put for 1.40

With XRT a bit higher at 42.90 the April 28th 40.50 puts will expire worthless but the overall trade is a bit of a loser here, worth about 0.80.

There’s two options here. One is to simply roll the short put, establishing a vertical in June like the 42/40 but at this price point it wouldn’t leave you with a great risk reward (although it would reduce premium risk). The second is to let the XRT trade a little bit lower before re-establishing the short leg of the trade. I think that’s wise as the ETF failed at the 200 day moving average and looks poised to re-test the 50 day:

We’ll check back in if XRT is lower in the next week or so. If it holds and bounces a stop loss of about .50 total makes sense as at that point it would make sense to re-position even if the view remained the same.