The Outerwall is crumbling

I still don’t get the name change for $OUTR but that’s not what this post is about. Yesterday it was announced that CEO had resigned (from the Board too) and the stock subsequently crumbled below the flat 200 SMA.

Here is a Daily chart showing the mild attempt to bounce today:

OUTR_B

As RSI is probing the 30 level – and reviewing the past history for price behavior when this happens – I have been keeping an eye on the stock for a potential new trade in the Submarine Basket (for more info on this Basket, just search this Blog).

One of the most frequent trades I construct is the RRCS – the Risk Reversal Call Spread. With this trade structure I am:

  • Long a Call Spread
  • Short Puts (takes margin until this piece is closed)

With that in mind, let’s look at a few different trade choices:

  1. Long the February 65/70/55 RRCS. Must be comfy owning at $55 (and/or hedge with stock if need be). This trade costs: $.35 debit
  2. Long the February 65/70/75 Call Fly with Short $55 Puts (1/2 size on the Puts) for EVEN. Must be comfy owning a 1/2 size position at $55 (and/or hedge with stock if need be)
  3. Long stock at $63 and Long the March $65 Puts. Once the stock starts to run up, sell Call premium to cover the initial cost of the Puts (expensive right now at $6)

 

ETF Short strategy starring TNA TZA FAS FAZ

I got asked recently about the ETF Short strategy that I do involving $TNA $TZA and $FAS $FAZ pairs. It has been a while since I have had these trades on but thought I would do a quick review of the goal of the trade as well as show some current performance info.

First, the goal of the trade if to be short each ETF and manage them as a pair. You could use Options as the initial trade or in conjunction with the ETF. The point it to capture decay even as price whipsawed around.

Now on to some performance metrics. In January 2013 the $TNA $TZA pair traded at $69.61 & $12.29 respectively. The Friday close in each: $71.74 & $12.76. Basically flat now after 2 years. It is likely that the only way you made money – if still holding this trade – was to sell Option premium along the way against the Short trade.

LOL

For $FAS $FAZ in January 2013 the pair traded at $133.20 & $13.50 respectively. The Friday close in each: $112.44 & $14.12

 

- DM 10:00 AM CST

 

The Bear Collar starring Foundation Medicine

I have a short stock position in $FMI ($57.82) and I wanted to add protection using Options. I elected to do the following yesterday:

  • I BtO the February $35 Calls (ITM) for a $9.50 debit (see here)
  • I later StO the May $40 Puts (OTM) for a $4.16 credit (this is to help offset some of the cost of the Long Calls)
  • I have an Options Net of -$5.34

Let’s take a look at where $FMI is trading now (5-minute chart):

FMI_5m_C

Now let’s look at a few scenarios to see how this Bear Collar trade structure works:

1) The stock drifts up to $55 by February expiration. I would let the Long Calls exercise thus closing the short stock piece. This would be a gain of $22.82 and leave me Short the May $40 Puts

2) The stock fills some of the Gap below to $40. I would let the Long Calls exercise thus closing the short stock piece. This would still be a gain of $22.82 and leave me Short the May $40 Puts. I would want to evaluate whether to remain short the Puts or not (close them, adjust to a future expiry, etc.)

3) The stock is at $60 at February expiration. I would let the Long Calls exercise thus closing the short stock piece. This would still be a gain of $22.82 and leave me Short the May $40 Puts

 

BtO = Buy to Open
StO = Sell to Open
ITM = In the Money
OTM = Out of the Money

 

- DM 10:30 AM CST

 

Swing Account review

I have added 3 new positions and exited 2 existing positions this week. Here are all the open positions now:

$CF  January 23 weekly 280/290/265 RRCS

$ENDP  Long stock at $72 with a Stop set at $76.80

$SWKS  Long stock at $63 and Short the January 30 weekly $70 Calls (covered)

$URI  Long the January 23 weekly 95/90 1×2 Put Ratio (see Blog post for more details)

$UVXY  Long the ETF at 24.64 and Short the January 09 weekly $27 Calls (covered). Options Net is $2.45 so have built a nice cushion (portfolio hedge)

$VRTX  Long the January 30 weekly 120/125/112 RRCS

$WYNN  Short the January $140 Puts with a Sell Short Stop set at $145.50 now (would be a hedge, 2x size)

 

RRCS = Risk Reversal Call Spread

 

- DM noon CST

 

An update on the Russia Bear 3x ETF RUSS

I have actively traded $RUSS since Friday. Here is the current trade that I have on:

  • June/Jan 56/40 Bear Risk Reversal (this was initially a Collar as I was Long the ETF)
  • This trade takes margin due to the Short Calls (expensive)

So far the fade in $RUSS has taken the Long Puts portion of the trade ITM (in the money) so I am getting what I want in the trade. I have a Buy Stop set at $50 (this would be a hedge for the Short Calls).

 

-DM 11 AM CST

 

Carmax revving up into Earnings

One of the strategies for Option traders it to own lower IV Options and sell into an event that cause the IV to rise greatly (like Earnings). Sometimes it is ok to close an Option trade right before the event (take the $ and run so to speak).

As an example I have done just that with $KMX. Here was my initial trade:

  • December 57.5/62.5/55 Risk Reversal Call Spread
  • This means I was Long the 57.5/62.5 Call Spread and Short the $55 Puts
  • I had done this trade on 12/03 for an $.18 credit (takes margin)

Today I exited the Long $57.5 Calls thus leaving me with 2 Short Option pieces: the December 62.5/55 Strangle. As long as price stays within this range I will keep all the premium collected to this point: $3.28

If price gets above $60.78 then the exit was premature. If not, genius. LOL