I spun the wheel of topics and fate has chosen ticker and trade review for today’s discussion. I want to comment on a few recent stocks I’ve played with and discuss my thought process. It’s always enlightening to see what other people have been trading and how they’ve handled both favorable and unfavorable conditions. I’ll take these in alphabetical order. And, remember, these are provided for illustration purposes only and are not to be considered trade recommendations. Mmmkay?
BABA – after the stock pole vaulted to $145 overnight I deployed an Aug/Jul $145 put calendar in anticipation of sideways price action. Typically after such a large move, some digestion is in order. With last week’s retracement I modified the trade by adding an Aug/Jul $135 put calendar. With a double calendar perched at $135 & $145, the best case scenario is for BABA to rise gradually back toward the $140 area. This week’s drop looks like a garden variety pullback so I think we could see a move higher next week.
BBT – In an attempt to increase my exposure to financials I began selling puts in this regional bank awhile back. The recent rotation into financials is really helping out this position. My short July 42 puts are working like a charm with the profit target inching ever closer. With the stock now back above all its moving averages, I’m hopeful the next few months of put selling will be smoother sailing than the last few. I did hold short calls on this to hedge but removed them last week when the stock began to rally in earnest.
C – This is another bank stock that setup a nice breakout pattern that recently triggered. I went long with a July 60 call option and later rolled to a bull call spread by shorting the July 65 call. As the stock has retraced this past week the gains from my short call have helped to offset some of the gains lost in the long 60 call. The financial sector (XLF) looks solid heading into next week, so I’m hopeful to see another upswing in C to deliver additional profits.
DAL – I’ve played this bad boy like a fiddle lately. The original setup was a bull breakout which triggered on 6/7. I purchased a July 50/55 bull call spread. DAL rallied for a couple more days and then formed a quasi-doji candle on 6/9. I went ahead and morphed the trade into a call butterfly by adding a July 55/60 bear call spread for 96 cents credit. DAL formed a textbook pullback this week returning to the rising 20-day moving average. With the stock reversing higher on Friday I decided to take profits on the 55/60 bear call. I bought it back for 49 cents. And now I’m back to the original July 50/55 bull call and hoping for a strong pop in the stock next week.
EEM – Foreign stocks like emerging markets have been rocking for months now. EEM is a fan favorite for naked puts and covered calls due to its cheaper price tag. July naked puts are once again delivering profits. Despite last week’s minor pullback, EEM’s uptrend remains stable. At this point, we’re just waiting for time decay to do its thang!
EWZ – Brazil receives the gold star for being the best behaved stock over the past month. Just look at that implied volatility crush following May 18th’s down-gap! And all the while the stock has been dithering. Premium sellers couldn’t have scripted this any better. The short July 38 calls and Jul 37.50/30 short strangles I’ve fiddled with have delivered the goods. With volatility now in the dumps, it’s about time we bid adieu to EWZ.
MS – Morgan Stanley is another bank that’s been on my radar. My weapon of choice this month was the July 42 naked put. It’s approaching 50% of max profit, and with the financial sector now back in an uptrend I’m optimistic the gains will keep on coming. Once I ring the register, I’ll re-assess and see if it’s appropriate to re-up the trade with an Aug naked put.
QQQ – With the market getting a bit slippery last week (mostly tech stocks) I elected to add some negative delta in the form of a bear call on QQQ. My timing on the entry wasn’t the best, and I’m sitting on a small loser right now. I will likely sit on this for a bit longer as it’s balancing out some of my other bullish positions. The price chart of QQQ still looks vulnerable.
SLV – Lame, Lame, Lame. That’s been the story of the year with silver. I’m nursing some naked puts in this pup. The incessant low implied volatility has been a buzzkill. Premiums are virtually nonexistent right now requiring option sellers to short options very close to the money or not at all. At some point, the glory days will return for silver, but for now, it’s a dog.
SNAP – My inner contrarian couldn’t be contained this week. The oversold conditions in SNAP were just begging for a short put play. The July 15s looked interesting and were trading for 40 cents at one point. Friday’s pop delivered profits to naked put holders. I’m hoping to see upside follow through next week. Otherwise, I have a fair bit of downside room and could use further weakness to sell additional puts for a better credit (like 70 or 80 cents).
USO – I had some short June 10.50 calls that expired worthless on Friday. For July’s trade, I went with a short 9.50 straddle. This week’s implied volatility crush was just what the doctor ordered for the position. Provided the stock sits between $10.35 and $8.65 the trade will capture the max gain. Althoughho, if we gravitate back toward $9.50 and implied vol remains low I should be able to capture the bulk of the profit early and bail.
XRT – the Amazon buyout of Whole Foods sent the retail sector into a tailspin on Friday. With my July 39 naked puts taking a bit of heat, I decided to initiate a partial hedge by selling the July 41 naked calls. XRT popped back by day’s end and actually looks solid going into next week. I may end up taking a hit on the hedge but have at least reduced the position delta to a more manageable level.
Last week’s volatility spike in tech (see VXN) did in fact subside. Monday was the perfect day to deploy naked puts/bull puts and the like on the tickers I mentioned in last week’s segment. I went with NVDA and outlined the management in this week’s Tales of a Technician post – see here. If you’re looking for where the high implied vol has migrated, might I suggest retail? KR, TGT, COST, WMT, and the like were running scared following the news that Amazon has decided to enter the fray.
End of week readings: VIX 10.38% (down 0.32 point from last week), SPY 5-day Historical Vol 5.54% (YAWN!), SPY 20-day Historical Vol 5.31%
- AAL, ALK, BABA, C, CAT, COST, CVX, DAL, DE, FEZ, HD, IWM, KRE, MA, MSFT, PYPL, SBUX, XLF
- GILD, NTRI, NUE
Tyler Craig is a professional in the world of technical analysis. As a member of the Market Technicians Association and a Chartered Market Technician (CMT), he brings an insightful perspective to his commentary. Over the past decade, he has educated thousands of traders through his work with Elite Legacy Education. He is the architect of Tackle’s own Technical Analysis 101 and Options 101 video series as well as the forthcoming Condors for Cash Flow and the Ultimate Bear Market Survival Guide. For a taste of his witty banter and rare ability to demystify complex financial concepts check out his current home, Tales of a Technician.
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