A look at the Measured Move starring Kindred Healthcare

Here is some basic info on the Measured Move:

MMNow let’s look at a Daily chart of $KND to see how a Measured Move is calculated:

KNDThe 1st Rising trend line has a move from $13.13 to $21.40 for a move of $8.27 to the 01/15/2014 highs. After the retracement to 02/05 lows ($17.58), a new uptrend began. If you take the $8.27 move from the 1st uptrend – and add to $17.58 – you get a target of $25.85 for this current uptrend.

Position mid-week update

Newly added this week that remain:

  • $FRX long stock at $86.40 with an Apr 90/87.5 Collar
  • $IYR Long the April 69/67 Risk Reversal (takes margin)
  • $GIMO long stock at 17.45 (1/3 size, a starter position). I will likely sell a Strangle as the next step
  • $STZ short the April 85/77.5 Strangle (Earnings). Options Net is: $2.34
  • $SNP long stock at $90 for the Fab 5 (6th man)
  • $ADM long stock at $43.87 with a May 02w 44.5/43.5 Collar (clients)
  • $EPD long stock at 71.73 with a May 72.5 Collar (clients)
  • $NRG long stock 32.64 with a May 33/32 Collar (clients)
  • $PEP long stock at 83.82 with a May 85/82.5 Collar (clients)
  • $SYY long stock at 36.04 with a May 09w 37/36 Collar (clients)

I had exited the Call Spread for $ALK earlier in the week but had noted I wanted to revisit it. I added a May 95/100/85 Risk Reversal CS (last piece was today).

 

Earnings Trades update – 04/05/2014

I receive questions each week on my Earnings trades so I try to post my Trading Journal view from time to time as an update and/or reference point:

April_2014The above trades are specifically initiated for the Earnings catalyst and include trades for personal accounts as well as for clients. A few things to note:

1) Hedging with stock is an element to each trade – regardless of the bias or design – when using Options. This could include a basic Long Call Spread position where there is concern that price may fade before the next normal market hours session. Hedging with stock helps to “lock in” profit

2) Selling Option premium “naked” takes margin so I am very selective when I do this. With that in mind, the point to have a Basket approach is that I can amass a substantial cushion to work with

3) As you can see in the graphic above, I utilize a variety of strategies to extract $ from the market in the Earnings event:

  • I sell Strangles
  • I use Risk Reversals
  • I use Calendars (Call or Put – or sometimes both)
  • I use Ratios
  • I use Spreads (Call or Put – or sometimes both)
  • I use normal stock, sometimes with a Collar (this is usually after the event)

Each situation is unique and sometimes I just don’t have a real bias so I design a trade where that doesn’t matter.

Position Updates – 04/05/2014

A busy week in the Swing account as I was up to 12 positions at one point. The 4 swing trades that did not survive to the weekend:

  • $INSM I owned an April 17.5/20 CS that hit a Stop on 04/04
  • $KING I was bottom fishing in this new IPO with long stock. The position hit a Stop on 04/02
  • $MNKD I had a trade on from the FDA Panel event
  • $NUS This was a short stock trade from 03/24 that I let get called due to expiring Options that were ITM

Other notable elements to existing positions (including LT & IRA accounts):

  • $ALK CS is not capped anymore and will need to keep an eye on it to ensure I get some good value for it
  • $AMBA The Stop on the stock remains at $25.75 (has a Collar PS with a lower PS strike at $24) and I will likely lower the stock Stop next week
  • $APC The stock saw a huge move up over the $100 level on some legal settlement news. I adjusted the April long Puts way up to the $95 level for a very small debit. Now need to work on the Call side (likely move up to May soon as it is quite capped)
  • $AVGO The stock is still capped by short Calls. I added a PS this week to protect it
  • $CRR I adjusted the top of the CS up to the $135 strike
  • $SQQQ This portfolio hedge remains. I adjusted the long Put piece down to $54 on 04/03: SQQQ
  • $PLUG The April 11 Weekly $6 Bear Collar will need to be dealt with this week (Calls are ITM, protecting the short stock piece well)
  • $EWW This LT position continues to rebound well. I adjusted the short April $60 Strangle to May 02 Weekly $63 on 04/04
  • $AKS This April 7/8/6 Risk Reversal CS is working well as steel gets a bid
  • $SLCA I adjusted the Puts up to the $37 strike for the April Collar on 04/02

Earnings Trades:

$GIII
$KBH
$KMX
$MON
$NES
$NKE
$PVH
$RH

There is an Options Net/Cushion of $29.585 on the Earnings Trades Basket. There is one position with a stock hedge and that is $PVH. Exits this week in Earnings trades:

Submarine Basket:

Here is the Summary:

Positions_04052014

The Fab 5 update – 04/05/2014

There was 1 empty seat to fill coming in to this week for the Fab 5 and I chose $APH on 04/02. This long stock position has April $95 Puts along for the ride given the market jitteryness. The Bear Risk Reversal PS remains on $MPC as I am letting the elevated IV burn off more (quite expensive to unwind the trade still).

I adjusted the April 4 Weekly option pieces to April 11 Weekly on $AGU $HON & $WDC. I will consider finishing the Collar on $NEE if the market continues to be under pressure next week (just short the April $97.5 Calls right now against long stock).

Here is the Summary:

04052014

Position Updates (mid-week) – 04/02/2014

Mid-week update on what is newly added:

  • $MNKD I have an Apr 4 weekly/11 weekly 5/3 Strangle Swap (initiated on 3/31 for the FDA panel vote). In addition I have a gain of $1.28 from a stock short on 4/1 in after hours
  • $ALNY I have an April 65/70/60 Risk Reversal Call Spread (submarine basket)
  • $APOL Long April 4 weekly 35/37.5/40 1×2 Split Call Ratio with Short 31 Puts (Earnings)
  • $JBHT I am long stock with an April 75/70/65 Collar PS (submarine basket)
  • $MON I am Long the April 4 weekly/Apr 112/110 Diagonal Put Calendar (Earnings)
  • $APH I am Long stock and Long the April $95 Puts (Fab 5, clients)
  • $CAT I am Long stock and Long the April 11 weekly/25 weekly 102/101 2×1 Diagonal Put Calendar (clients)

 

an Earnings trade review in Monsanto

Here is the trade that I initiated for Earnings in $MON:

  • Long the April 4 weekly $112 Puts
  • Short the April $110 Puts
  • This is a Diagonal Put Calendar
  • This was done for a .10 debit on 04/01 and takes margin

Let’s take a look at the Daily chart to see what happened post-Earnings:

MON_post_earningsPrice has worked within a range of just below $112 to $116 since the Earnings report this morning. My trade had only a Bearish bias to it so let’s take a look at some scenarios to see how it can play out:

1) Price stays near the $115 level. The Long weekly Puts will go poof Friday leaving me Short the monthly $110 Puts

2) Price falls down to $112 on Friday. I would get a little value for the Long weekly $112 Puts and would use that to protect the Short monthly Puts. I could also decide to just unwind the whole trade

3) Price miraculously craters to $110 on Friday. I would unwind this Diagonal Put Calendar

 

Protecting a long stock position with Options

Options can be a tremendous tool for a variety of situations. What I would like to discuss in this post is the use of an Option Collar to protect a long stock position. I currently have a long stock position in $QIHU – long at $97.80 since 01/31/2014 (for clients). I have done several Option trades in conjunction with this long stock and currently own an April 11 weekly $110 Collar:

QIHUIn this latest adjustment on 03/21 I Sold-to-Close the Mar $120 Puts I owned (expiration was that day) and added an April 11 weekly $110 Collar. This was done for a nice credit due to the long March Puts being In-the-money (ITM). The Options Net of $10.19 is booked gains on the trade.

So let’s take a look at what has happened since this adjustment:

QIHUAs you can see above on the Daily chart that the stock took a nosedive from the 50 SMA before finding some Support at this Pivot area on 03/27. The stock piece has obviously lost value but let’s see how the Collar has helped offset that loss:

closing bid/ask of the April 11 weekly Options on 03/28:

  • Short April 11 weekly $110 Calls:  $.55/$.75
  • Long April 11 weekly $110 Puts:  $15.10/$15.90

This Collar has 2 weeks until expiration.

The Fab 5 update – 03/29/2014

I came into this week with 2 empty seats to fill. I started a new position in $AGU on 03/24 & then added $WDC on 03/25. However, I had to exit the stock piece on $MPC (hit a Stop for a $3.50 loss). The $MPC April 92.5/92.5/87.5 Collar PS became a Bear Risk Reversal PS and that still remains. There is an Options Net of $2.98 as well.

The $HON & $MEE positions have reached the time rule so I will need to address them this week (either exit or allow a time rule exception).

Here is the Summary:

03292014Fab 5 candidates: