An Earnings trade review in Starbucks

We are now well into Earnings season and so there will be more info from me on trades for Earnings reports. I review each trade the same – whether it is deemed a success or a fizzle – to ensure that I am complying with my overall trading process.

There are not many traders that discuss trades that are deemed a failure so I thought I would do a blog post on how the $SBUX trade has played out. Here is the trade specifics:

SBUX

  • I am Long the July 25 weekly 80/82/83 1×2 Split Call Ratio. Another way to look at this is: I am Long the 80/82 Call Spread and short the $83 Calls as well = a 1:2 Long/Short Ratio
  • I am Short the July 25 weekly $77 Puts
  • This was done for a $.14 credit
  • This trade takes margin

Now on to the Daily chart to see how $SBUX reacted:

SBUX

A nice Doji for today (indecision) as traders negotiate for a new price for the stock after the Earnings report. For my trade, I can get very little value for the Long $80 Calls right here. The other 3 pieces are trading at a penny or two.

So the result is: I don’t get much more in additional value out of the trade beyond the initial credit – and I expect all 4 pieces to expire today. Was this trade a success? Not in terms of providing additional profit no. Did it allow me to participate for the potential reward? Yes.

I would also add one more thought here: keeping the cost down to a minimum (or even being paid to put the trade on, a credit) is a key element to my trading design. I accomplished that here so maybe it was a success after all … feel free to chime in with comments below.

Position Updates

This was a very typical Options expiration week with a few surprises along the way to my Plan posted last weekend. Aside from the focus on existing positions with July options, I did manage to add new positions that survive to the weekend: $CHL $INTC $KNDI $JPM $SWKS $CBI $GNRC.

Exits (primarily due to July Options expiration plan):

Earnings:

07192014

50/50 Basket:

Here is the Summary:

 

Positions_07192014

The Volume Bar buy signal

part of the Simple Approach series of blog posts

For traders that like to trade with simple triggers you may find this of interest. I use RSI and Volume Bars as Buy/Sell triggers and so I like to offer examples to show what I mean.

For an example using Volume Bars as a Buy signal I bring you $CAB:

CAB_volume_bars

As you can see above, I highlight several Buy points (blue vertical line). Here are the details:

1) Buy the next green Volume Bar – after at least 3 Red bars in a row

2) There have been 6 triggers so far with #7 in the works now

3) Use your own Stop and/or Risk parameters for exiting each trade that you would take

4) Trigger #4 is likely a loser

 

Position Updates

I did an update earlier this week summarizing the trading activity this week here and all the newly added positions survived to the weekend (exception is $LL but I already noted that it was exited).

Submarine Basket:

Earnings:

50/50 Basket update was done on the blog Thursday. No material changes on Friday.

Here is the Summary:

Positions_07122014

 

A trade idea in Acuity Brands

Acuity Brands reported Earnings on 07/01 and missed estimates:

Estimize Earnings page for $AYI

The reaction was negative as traders took profits or shorted the report. Here are a few looks at the Daily:

AYI AYI_B

As you can see above, price is hanging on to the 200 SMA right now (one Support level).

So what now? If you don’t currently have a trade, here is one idea to consider (if you think it will start a steady rebound into August):

  • Short the July 120/115 Strangle (takes margin)
  • Long the August 120/125 Call Spread
  • This trade can be done for a small credit
  • The margin use will go poof if price is in between the 2 July strikes at expiration

If the $120 level is too close for you then consider this:

  • Short the July 125/115 Strangle (takes margin but will be less than idea #1)
  • Long the August 125 Calls
  • This trade can be done for a small credit
  • The margin use will go poof if price is in between the 2 July strikes at expiration

Position Updates

Noted activity in the my personal accounts

Although this was a holiday shortened week, I was fairly active in the Swing account. Here are the newly added positions this week that survived to the weekend:

  • $ILMN   L July 175/185/170 Risk Reversal Call Spread
  • $VIPS   L August 200/220 Call Spread (LT account)

Exits:

Submarine Basket:

Earnings:

Here is the Summary:

Positions_07042014

 

Position Updates

a look at my Trading activity for my personal accounts

Here are the newly added positions this week that survived to the weekend:

  • $CTRP I am long stock at $56 with short July 60 Calls
  • $BWLD I own a July 160/165/155 Risk Reversal Call Spread
  • $SLB I own a July 03 weekly 110/116/110 Risk Reversal Call Spread
  • $ULTA I own a July 90/87.5 1×2 Put Ratio
  • $VRTX I am short at $102 with a July 90/90/100 Bear Collar Call Spread
  • $BBBY I own a July 03 weekly 56/57 Call Spread
  • $MPC I am long stock at $78.90 and short the July 03 weekly 80 Calls
  • $BKS I am short the July $23 Calls (2x) with a long stock hedge at $22 (and a Stop at 22.50)

Exits this week:

Earnings:

Submarine Basket:

Here is the Summary:

Positions_06272014

The Trade Process starring Accenture

In order to have a solid Trading Process a trader must be sure to evaluate each trade to see how it holds up to a variety of scenarios. For those that participate in Earnings trades this is especially important given that the reaction can often surprise.

I had decided to do a trade on Accenture ($ACN) for Earnings on 06/25 AMC:

ACN

Here is a breakdown of the trade:

  • I am long the June 27 weekly 83 Calls
  • I am short the June 27 weekly 85 & 87 Calls
  • This was done as a 1×2 Ratio
  • I am also short the June 27 weekly 78 Puts
  • This trade takes margin until Friday (or until the uncovered short pieces are closed)
  • This trade was done for a $.12 debit

The initial reaction this morning in pre-market action was positive but I still need a plan for exiting the trade with profit. I was surprised by a sudden fade in the stock price so I did the following as a next step:

ACN_B
This step – shorting stock to lock in some gains – has ended up being a much larger part of the profit in the trade as price has fallen to near the $80 level:

ACN_B

I have lowered the Stop on the short stock piece to $82 now (locks in $2.35).

Bullish Engulfing

If you are new to trading you may be scared by this term but fear not. The Bullish Engulfing candle simply means that the current candle range exceeds the prior trading day candle – so it “engulfs” the prior price action.

To illustrate this I bring you the Daily chart of Schlumberger Ltd ($SLB):

SLB_B

This powerful up move today is also confirmed by very solid volume. Congrats to those that are long.