Friday, July 11, 2014

Weekly: Portugal and Wells Fargo

News events this week include a large bank in Portugal missing a bond payment, and poor earnings from Wells Fargo. I close two positions for big losses: short puts on Delta Air and on the Russell 2000 etf. Both rebounded off their lows, making the large percentage losses a bit more painful. Other highlights include new long positions in Cummings Engine CMI, Occidental Petroleum OXY, Federal Express FDX, and AIG insurance. 

My Russell 2000 position flipped to net long on the decline. A lot of my other longs declined in price, with Monsanto MON, and EWG the German stock etf being the most worrisome as they near their respective strike prices of 120 and 30. For now I am holding. Here are this week's trades:

Fri Sell APC Aug 130 calls @104.8. I hedge my long position in Anadarko Petroleum by selling calls. I am going way out of the money, because there were those unconfirmed take over rumors. The nearest short puts are the July 100s.

Thu Cover short IWM Jul 114 puts @114.1. News from Portugal sends U.S. stocks lower. I cover this layer of short put on the Russell 2000 for a 700% loss (basis the premium collected) in nine days. I dance a little too close to the flame, selling these puts so close in, and got burned. The low of the morning is 113.97, so IWM broke the strike price and that is one rule I use for covering. Again, there is a chance that this is the worst of it. As I type this up, IWM has rebounded. I have many layers of short IWM puts at various strikes and expirations. I will not roll the dice, in case this is part of a waterfall decline. I got out using one of my rules, not on emotion. As always, trading is easy in hindsight, not so easy in real time.

Sell OXY Aug 90 puts @104.5. New long position in Occidental Petroleum. I've been in the stock before in 2014. Chart is supportive, company continues to buy back stock, providing additional support.

Wed Sell CMI Aug 140 puts @155.2. New long position in Cummings Engine. CMI announced another $1 billion buy back, market cap is $28 billion. There is chart support, and 140 is a couple of support levels lower.

Sell AIG Aug 50 puts @55.0. New long position in AIG. Chart support at 52 and then 50.

Sell GLD Sep 118 puts @127.8. I open a September long position in gold. Seasonal factors and an ok chart are reasons.

Tue Cover short DAL Jul 35 puts @35.1. I cover these short puts on Delta Air for a humbling 400% loss basis the option premium collected. DAL continues to tumble lower, breaking below 35. When in doubt get out, especially when the stock crosses the strike price of short option. A few hours later, the stock has rebounded, perhaps after taking out some big stop-loss orders around the 35 level. Again, these things happen. It is frustrating to cover at near the worst levels of the move.

Mon Sell FDX Aug 140 puts @152.1. New long position in Federal Express. FDX broke out on earnings in June. 140 is where the stock was before earnings.

Position summary:
long AIG AMGN ASH CMI EPI EWG
long FDX HON JWN MON MSFT
long SLB UNH VRX WAG XLU
net long APC DIS IWM
net neutral DAL DIS GLD SPY

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