One of the key earnings releases this week was in $PCLN and I wanted to be sure to have a trade in place that could benefit from the expected move. The May 10 weekly 735 straddle had priced in a $43 move. I spent a fair amount of time throughout the day Thursday designing a trade that I was both comfortable with but could benefit from an upside move.
Here was the trade:
- Long the May 10 weekly 740/750 Call Spread
- Long the May 10 weekly 660 Put (1/2 position)
- Short the July 660 Put (1/2 position)
This trade was done for a $.35 credit and any upside move would be capped at the 750 strike (plus small credit). A downside flush would be protected by the long weekly Put. Important.
The plan for exit was obviously to benefit from an upside move and sell the call spread. After the release in the after hours trading session, I did short the stock for a small scalp to build a bigger cushion. The stock held up well the rest of the evening and this morning began to drift up once the pre-market trading opened up. A welcome surprise.
The plan was still the same:
- Work the long Call Spread for whatever value I could. It eventually went ITM (in the money) so the gain was capped and I exited
- The long weekly 660 Put will go poof this weekend
- I will remain short the July 660 Put for now (currently trading under $4)
The $EEM ETF is widely followed and has formed a very interesting pattern in 2013: the Broadening Wedge or Megaphone. Here is the Daily chart to illustrate this:
Several things to note here:
- The lows in April almost saw RSI tough the key 30 level but since it has drifted up and is approaching the 70 level
- As price moved up in May, volume has declined
- The 50 Simple Moving Average looked headed to hook up with the 200 but is now curling back up
For some more perspective, let’s take a look at the PnF chart:
A print at 45 will set up for a Double Top Breakout. A bull PO of 61 remains.
For more information on the Broadening patterns, take a look here at what Bulkowski says.
I have a routine to do a deep review of all existing positions as well as any newly added for the week. Here is a Summary:
- $BAC I am Long stock. I have StO the May 13 Call on 5/6
- $BONT new Long in my personal Swing account at 15.20 on 5/6
- $DDD new Long in my personal Swing account at 40.7 on 5/8 (1/2 position so far)
- $DVA post-earnings, a nice positive reaction so I have StO the June 130 Call against my Long stock position
- $SPRD I am Long stock. I adjusted the Short May 21 Call to the May 20 Call on 5/6
$ONXX I BtC the May 97.5 Call on 5/7 as earnings were coming up
No newly added earnings trades still on as of this post. There are several newly added for clients however.
StO = Sell to Open
BtC = Buy to Close
I end the week with no newly added positions in my personal accounts that survive. I sold a few positions so I have raised my cash level. As is usually the case, I made a few Option adjustments:
- $JCP closed May 3 weekly Option pieces & sold the June 17/16 Strangle (paired with Long stock still)
- $AIG post earnings I initiated a 45/44 Collar for May
Here is the Summary:
I came in to this week needing to fill 2 empty slots and managed to add 1 new position. I also attempted to make a Call Spread in the $ONXX position but had a Stop hit on the long Call piece (a remaining Short May 97.5 Call). I closed the week with 4 positions.
The $ACT position completed the $100 Roll this week so it gets a Complete status. $HYG made a new high. I added $BDX (for a client) as the newest member.
Here is the Summary:
The candidate list:
RSI is at 89.99 as of the writing of this post. Here is a Daily chart:
With over-sized moves like this, I put these on my “to fade” list and just monitor with Price Alerts. I like to see volume go sideways, as well as pay attention to how far it is stretched from a key moving average (like the 50 SMA in this case).
My trade approach is this:
- Short stock at 23.75
- Long the June 25 Call at $1.30
This would be my normal approach to this. However, when reviewing the Option chains I noticed a very large trade in June:
This made me pause here and thus I have decided to hold off on putting this trade on until I see a few more days of trading.
This stock was at $11 in April, of 2013. LoL
Let’s get right to the Weekly chart:
- Lost the 50 SMA (68.49)
- Lost the 200 SMA (62.34)
- The pullback is on Rising volume
- MACD rolled over
- 2 weeks of Big selling
- The Gap defined by the blue box has not filled yet
- Kidding, lol
- Notice the Volume at Price bars. 5 massive bars in the price range of $60 to $75
- Approaching the RSI O/S area of 30 where 2 prior tests were bought (last one however was a 13-week bottoming process)
My assessment is this: I think it finishes filling the gap below and that should coincide with the RSI bottoming at 30. It is then that one can consider building a new long position for a rebound play. The R/R for a new short position here has diminished but can be considered nonetheless.
The next Earnings release is May 8 BMO.
Here are how the May & June Option chains currently look:
An active week trading stocks but no newly added positions survive into the weekend for regular personal accounts. For Earnings trades, a long stock position in $INTU survived. For the Fab 5, $HYG held up well and remains in the basket.
The $JCP long stock position reacted well to 2 big pieces of news causing me to have to move up the Put strike for May. This also gave me the chance I was waiting for to sell some premium against the long position on 4/26.
The long May 125 Put in $DVA has offset the pullback in the stock nicely as it filled the Gap below on the Daily chart.
Here is a Summary:
I came into this week with 3 empty slots to fill and managed to get one new position initiated in $HYG (an ETF, coolio). $ACT managed to get a Day #1 in on the $100 Roll so that is exciting. I sold premium against the Long stock position of $ONXX (since the April monthly premium expired last week) and this has helped offset the pullback in the stock. I have collected $6.10 in premium up to this point in $ONXX.
Here is the Summary:
Here is the candidate list:
I have owned $CRUS for a while now and the use of Options has helped offset the decline in price (too much reliance on $AAPL). I have owned the May 20 Put and on the post-earnings reaction I had one simple thing to do: sell an upside Call against my stock.
I chose to sell the May 20 Call – collecting $.80 in premium – to complete the Collar. Now today the stock is pulling back so a review of the Option premium movement from the Collar shows just how important owning a Collar can be:
- The May 20 Call is now at a .25/.30 bid/ask — down from the 1.05 close yesterday
- The May 20 Put is now at a 2.00/2.15 bid/ask — up from the 1.14 close yesterday
- The stock is down $1.40 from the close yesterday
As price has pulled back today, both side of the Collar begin to win which helps to more than offset the decline in share price.