Anatomy of a trade starring Green Mountain Coffee Roasters

I often get questions regarding certain steps that I take in exiting an option position that are hard to answer in a twitter message. Sometimes the questions pertain to time-frame, or “why did you do that, why not do this” so I find it easier to do Blog post where I can lay it all out.

A heavily followed stock is $GMCR so my current trade has generated a lot of questions surrounding what I have been doing the past 2 days on the option side. Here is a summary of the initial entry:

  • L stock at 33.85 in after hours on 11/27/2012 (earnings report day)

I sold 1/2 of the position on 11/28 for $36 for a profit of $2.15 per share. Once I see a stock stall, and I did in this case, I like to at least sell Calls against the position to give myself a cushion for any downside move. I did just that with this trade:

As price churned yesterday, I elected to move up the strike to give the position a little more room:

I came in today with a plan to address the 4 positions that have weekly options (including this position). After some review today, I elected to sell the long stock position and manage this short Call into the close. The $.69 in premium gives me a lot of room to do so and is worth the effort.

PnF on Apple, change the lens

I like to use PnF charts often just to ensure that I understand the perspective of those trading from them. In order to do that, it is important to change the lens within PnF as well.

For an example, let’s take a look at 2 charts showing how the chart changes when you change the Reversal Box #. First up is the normal 3 box Reversal PnF on $AAPL:

This looks like a nice DT B/O setup with a Bullish PO of 755. Looks great!

Now let’s see what a 4 box reversal looks like on $AAPL:

Oh man. That Low Pole Reversal on 11/20 was a KEY tell. The Bearish PO of 561.67 has already been met.

Go ahead, it’s ok to change your mind in trading

Change Your Mind Lyrics – The All-American Rejects

It’s just your doubt that blinds you.
Just drop those thoughts behind you, now. (now)
Change your mind.
Let go too soon.


I got a head start this week in doing some review for my November trading and one thing that has really stuck out to me is how often I have been switching my bias with a stock trade. A key element in my trading is the trade design, ensuring I have flexibility – because I want that, but nonetheless I have noticed an increase in switching a bias much more frequently.

I have several example just this week alone, but will use my $ANF trade to highlight where I started from – and where things stand now. Here are the specifics of the initial trade idea and execution:

  • This was a “to fade” play after earnings. I decided that it was  a move that could be faded.
  • Because of this view, I kept that is on my “to fade” list and ultimately initiated a short position at $46 on 11/26
  • Later that day I added a November 43.5/45/46 Bear Collar for a $.06 credit

Now let’s move on to the adjustment that was made this week once I saw what the market thought about $ANF:

Even though I have an option Collar on a position, it does not mean that I don’t also use a trail stop on the underlying stock. It is for this reason that I will, from time to time, close out a stock position and convert a Collar to a Risk Reversal trade. In this case, the Bear Collar becomes a normal Risk Reversal trade.

I am short the November 43.5 Put and long the 45/46 Call Spread, same expiration (tomorrow). With this in mind, I need to manage the CS to ensure I get optimum value for it soon. I don’t expect a need to address the short Put, it should expire tomorrow.

Trade Update – VF Corp

One of the “oldest” earnings trades that I still have on is the trade in $VFC from 10/23/2012. I am long the stock but have had to do several option trades to lower the cost basis, protect the position along the way. I did a trade update here.

I spent some time doing some analysis this morning, updating my Trading Journal, and thought I would share the specifics here on what has transpired up to this point:

These are all the option pieces that I have sold or bought including the exit on each piece. A few of them expired worthless allowing me to keep the premium collected.

At the moment, the only open option piece is a short December 160 Call – a covered call on the long stock position. The stock is currently trading around $160 so this position has potential to be capped once above the 162.70 level.

The Covered Call – what do you do if you get capped?

A quick note, was amazed on the variety of meanings for “getting capped” via a Google search:

Now on to the trading related version of “getting capped”. When you have a long position, one of the key ways to protect the gains against a downside move is to initiate an Option Collar. A Collar is where you sell an upside Call against the long stock position, and then buy a downside Put.

Another strategy is to just sell the upside call, thus creating a Covered Call. But what happens when price moves up through the Call strike? This is where your gain gets “capped”. So when that happens, what do you do?

Here are a few scenarios using my current $DE trade as an example of what to do if your long stock position has a capped gain currently:

  • I am long the stock
  • I have sold the November 30 weekly 85 Call against it (so it is a covered call)

Price is currently arm wrestling the $85 level and looks very interested in breaking up through it. Here are my potential paths to take:

  • Do nothing. ride the trade until expiration this Friday then decide.
  • Buy back the 85 Call and sell a Call one strike higher for this week. Not likely a good option given the $2.50 spread between each strike.
  • Wait until Thursday to decide on what to do. If I can, buy back the Call for this week and sell an appropriate Call for the new weekly’s that are available then.
  • Since the stock could be called away at any time, this is always a path that can get chosen for me.


Position Updates

On the Long side:

  • $BRCM December 32 Call
  • $CRUS (& short the Dec 31 Call against so a Covered Call)
  • $MNST January 45 straddle
  • $REGN (& own the December 175/165/155 Collar)
  • $JCP
  • $T
  • $DVA (& own the January 120/110 Collar)
  • $SYY
  • $VFC (& short the December 160 Call against so a Covered Call)
  • $UA own a December 47.5/60 R/R trade
  • $FOSL own a December 110/115 Call Spread
  • $HPQ short a December 11 Put
  • $DE (& short the November 30 weekly 85 Call so a Covered Call)
  • $CRM (2/3 position left & short the November 30w 160 Call against so a covered call, 2/3 position)

On the Short side:

  • $FB (with a December 22/24 Collar)
  • $GRPN (& own a December 3 Call)
  • $ANGI
  • $FOSL own a December 75/70 Put Spread (a Look Both Ways play, see above)
  • $KKD own a December 9 Bear R/R


The Covered Call

I received several questions today regarding a few option trades that I did earlier on $CRM and $DE long positions that I have so I thought I would provide some detail on why I did what I did and what the potential scenarios are.

Here is a summary of current positions with these 2 stocks:

  • I am long $DE at 82.45 from 11/21
  • I am short the November 30 weekly 85 Call on $DE at $.42
  • I am long $CRM at 156.40 from today, 11/23 (after closing a short position I held over Thanksgiving, I did a U-turn trade) — a 2/3 position
  • I am short the November 30 weekly 160 Call on $CRM at $2.28 (2/3 position)

Here is what I have done today regarding these 2 stocks:

The point on selling the Calls against a long position in this scenario is to create some cushion for any minor pullback in price. If this pullback does occur, then at that point I consider doing one of the following:

  • buy downside Puts for protection (using the proceeds from selling the Calls, creating a normal Collar)
  • sell the long stock position and then I am naked short the Calls
  • do nothing, hold the position as-is until expiration next Friday. On expiration day, I then can decide on what to do with the long stock position and/or short Call


Other side of the river now using Williams %R

As is the case with every indicator, there are trades that can be found with oversold readings AND over-bought readings. The Williams %R indicator is no exception.

To illustrate this, I bring you 2 charts. The first is the Daily chart of $CSCO:

Very elevated reading here and the Hanging Man candle seals the deal.

Now for a chart of $TSN (recent earnings report too):

Another with a very elevated reading but may still have a little left in the tank. A Short here would require a little more patience but a nice trigger nonetheless.

Buy triggers – using Williams %R

I don’t see a lot of conversation on the use of Williams %R indicator and thought I would offer an example of how to use as a buy trigger – for those that like a simple approach.

Here is a Weekly chart of $CNP:

Once again the indicator is at a point where a buy trigger is present. Note the prior buy triggers and how well price performed after.

As always, use your trading process if you use any trading idea.

Collar details for Deere

Received a few questions on the option collar that I put on for $DE so here is a detailed breakdown:

I am long the stock from the earlier bounce. I have put on a Collar now for the November 23 weekly expiration and will hold through earnings. Here are the pieces:

  • short the November 23 weekly 87.5 Call (covered)
  • long the November 23 weekly 85 Put
  • short the November 23 weekly 80 Put
  • The trade above creates a 85/80 Put spread for some downside protection. It also caps the gain at the 87.5 Call strike
  • This was done for a $.10 debit

Here is the chart I was trading from this morning: