Submarine Basket update – 09/13/2014

Newly added to the Submarine Basket this week:

  • $CONN I am long stock at 29.25 with a short September $30 Straddle (Calls are covered)
  • $DE I am long the September 26 weekly 82/81/80 1×2 Split Put Ratio (takes margin). The 82/81 Put Spread is to play for further downside (in case I am a little early) and the short $80 Puts are a strike I don’t mind owning from
  • $VSI I am long the Oct/Nov 45 Call Calendar (was done for a $.85 credit)

Adjustments I made this week to existing positions:

  • $GNRC The long September $45 Calls hit a Stop on 09/09 (leaves a short Strangle now)
  • $TSCO The long stock piece hit a Stop on 09/09 (leaves short $65 Calls)
  • $WDAY I adjusted the short Calls to the September 26 weekly $92 strike (covered calls)

Here is the Summary:

09132014

Position Updates – newly added this week

Newly added this week that is still on:

$GTAT L Sep/Sep 12w 18/17 Strangle Swap with extra Short September 22/14 Strangle. I am short stock (from 16.12) as a hedge. If price stays under $14 then I will let the stock piece get unwound for me. The short weekly $18 Calls will go poof. This would leave me Long the September 18/22 CS & 17/14 PS. Options Net: $.21

$VNET I am long stock at 14.92 with a September 22.5/21 Collar

$MBLY I have a December 55/50 Risk Reversal in the IRA (replaced $KNDI this week)

$CONN I am long stock at 29.15 and short the September 30 Straddle (Submarine Basket). Options Net: $1.80

$KKD LBW was the original trade. What is left: I am long the September 18/19 1×2 Call Ratio & short the 16 Puts (2x). Options Net: $.70 (Earnings)

$PANW I am long the September 12 weekly 90/95 1×2 Call Ratio with long stock at $95 (hedge). The plan is to let the CS auto-exercise and the long stock will get called away via the extra short $95 Calls – as long as price stays above $95. The short $85 Puts should go poof. Options Net: $.35 (Earnings)

The LBW (Look Both Ways) trade – a review of a Restoration Hardware earnings trade idea

I had offered a trade idea for $RH into Earnings and thought I would list a few potential exit paths to take if you executed this trade. Here was the trade idea:

  • LBW
  • Long the September 85/90 1×2 Call Ratio
  • Long the September 80/75 1×2 Put Ratio
  • At the time I posted the message this trade cost $.60
  • This trade would take margin (at least until the “extra” short Option pieces were closed)

Now that Earnings is done, price has settled around the $78.50 level so the Put Ratio side of the trade is winning. So now what?

For most traders, taking off the Put Ratio is the step they would take. However, it is often the case that price never probes the bottom of the Ratio so leaving the premium to expire is worthwhile.

To help with a visualization of this trade, consider looking at the Put Ratio in a different way:

  • Long the September 80/75 Put Spread
  • Short the September $75 Puts
  • Treat these as 2 separate trades

If you think price holds in this area until expiration then you would sell the Put Spread when you feel it has found a solid floor. You would then place a Stop on the remaining $75 Puts that you are short with the goal of them expiring worthless. You may even be ok with being Put stock at $75. If price does hold in this area, the Call Ratio obviously expires worthless at expiration too.

Your trade, your process.

 

Disclosure: I did not execute this trade before Earnings. I did trade the stock in after hours though – after the report.

A Strangle Swap in GT Advanced Tech

One of the more anticipated news event is the Apple product announcement today. One of the potential benefactors is $GTAT and so I put on the following trade yesterday to play for an IV crush:

GTAT

Here is a breakdown of the trade:

  • I am Long the September 18/17 Strangle
  • I am Short the September 12 weekly 18/17 Strangle
  • I am Short the September 22/14 Strangle
  • This trade takes margin
  • This trade paid me a $.21 credit

So how does this trade work? Let’s view another way to look at the trade:

  • I am long the September 18/22 CS
  • I am long the September 17/14 PS
  • I am short the September 12 weekly 18/17 Strangle

Once the $AAPL event is over – and the $GTAT news is available – I am looking for the weekly Option IV to implode. As long as it stays within the 14-22 range I can look to do any necessary adjustments this Friday (if price stays in this $17-18 area, yippee).

GTAT_B

 

50/50 Basket update

I have been active already this week as several positions were closed: $GLUU $ISNS $LEJU

So, this leaves me with:

  • $DRL I am short from 8.42 (since 08/25)
  • $JRJC I am long stock from 8.07 (since 08/20) with a September 11/10/7.5/6 Collar PS. The Collar PS was originally a Bear Risk Reversal PS until stock became part of the trade (originally a hedge)
  • $PBYI I am short the September $240 Puts
  • $TKMR I am short from 25.04 since (08/11) with a Sep/Dec 17.5/30/17.5 Diagonal Bear Collar CS (short Dec Puts, long the Sep CS)
  • $VJET I am short from 26.40 (since 07/01) with a September 17/18 Bear Collar

 

A trade idea breakdown in John Deere

A Put Ratio in $DE using the September 26 weekly Options:

I would be looking for the $82 Puts to get ITM (in the money) by expiration

DE_Sep26w_Options

A few scenarios to consider:
1) Price is at $81 at expiry. I would let the 82/81 Put Spread auto-exercise for a $1 credit.
2) Price is at $80 at expiry. I would let the 82/81 Put Spread auto-exercise for a $1 credit. I would then evaluate if I want to be Put stock at $80 or not. I could consider adjusting those short $80 Puts to a future expiration as a possible step.
3) Price is at $85 at expiry. The Put Ratio goes poof.

A diamond in the rough

Oh yes I did.

Each weekend I run a variety of proprietary scans to look for potential new trading setups for the upcoming week. Although I have a rather full plate in terms of the number of positions, I do have some room in the Submarine Basket now. With that in mind, I wanted to focus on stocks that have pulled back to a good potential Support/bounce area.

One stock that caught my eye was $DO and here area a few graphics to ponder:

DO DO_Oct

RSI briefly tested the 30 level in March – look what happened after. RSI is back to arm wrestle the level again so I would look for history to rhyme. One additional data point I’ll add here: 22.6% short interest is some serious fuel for the fire if it can bounce from the Hammer it formed on Friday.

Someone was very hungry for the October $45 Calls on Friday …