Summary – Monday, 2008.V.12.

Oil has FALLEN to $124!  It is now officially cheap!  The recession is over!  Economic recovery, here we come!  Buy buy buy buy!  Thank you.

DP Buys:

• Earnings strangles in [[CSIQ]], [[LDK]], [[ZOLT]].  LDK reported this afternoon…and the prognosis is not so positive for the other solars:  the whole industry is struggling with the soaring cost of polysilicon, which is somewhat crucial for the whole solar deal.
• Limit orders for calls in [[ALEX]] & [[KWK]] were filled during the day.  Managed to buy KWK right at the day’s high…

DP Sells:

• [[AIG]] puts were stopped out on the morning spike.  Booked an overall profit in the earnings straddle, but it could’ve been quite a bit higher as AIG soon reversed for a 5% drop…
• [[CHK]] looking toppy & showing some weakness…sold remaining calls (1st half was sold last week) to book the best percentage gain of the month so far (167%).  Wasn’t the highest net gain due to the small initial position size.
• Puts in [[AMLN]] & [[AMZN]] stopped out for a small loss & a small gain, respectively.

Spent a portion of the weekend doing Fly-like activities on the PS3:  knocking/running over old ladies, punching off moustaches, calling people fucktards, acting like/being the king of the world, investing in Mother Russia, going for ‘hot coffee’ with the ladies, etc.  You could say I was living the digital high life in the best edition of GTA yet.  The critics were right (only the 5th game to receive a perfect 10 from GameSpot, joining the N64 Zelda, Chrono Cross, Soul Calibur, and Tony Hawk 3)!

In the ‘real world’, it’s once again expiration week, which usually brings a bit more volatility and general tomfoolery to the markets.  It also makes earnings straddles/strangles all the much more exciting (related post from the PG).

Earnings season is unfortunately winding down so the pickings may be a bit slim…  Looking to play the following:

• Mon. PM/Tue. AM:  [[CSIQ]], [[ZOLT]]
• Tue.  PM/Wed. AM:  [[AMAT]], [[MELI]], [[SNE]]
• Wed. PM/Thu. AM:  [[BX]], [[CTRP]], [[YGE]]
• Thu. PM/Fri. AM:  [[JWN]]

Any of your favorites out there?  Put it in the comments, if you think it could be coin-bankable.

Another busy day working and banking some coin on the side.  Limit, (trailing) stop, and conditional orders are definitely the best friend of someone who cannot keep an eye on the markets 24/7.

No new positions for me today, mostly because I didn’t spend my usual time last night looking through my watchlist and/or running a couple screens at finviz.com.

DP Sells:

• Following the strategy outlined in the previous post, sold [[PCLN]] & [[TRLG]] strangles (puts in the morning, calls later in the day on trailing stops).  TRLG treated me especially well, finishing with 100% profit in the trade.  In celebration, I wore a pair of their jeans to work.
• [[AIG]] reported spectacularly bad numbers, so I sold the calls from the straddle at the open.  The puts are still ‘alive’.
• [[CELG]] puts hit their trailing stop, thus closing out the earnings straddle from Wednesday for a small profit.

Ok…I shall attempt to illustrate a typical earnings straddle/strangle trade.  I was going to do both CROX & HANS, but they turned out almost identical.

The general idea/strategy is always the same (related posts:  here & here):

1. Buy so that there is a full trading day before earnings.  This lets you take advantage of any pre-earnings run-up.
2. Sell ‘losing’ leg once you think a direction has been set.
3. Ride the ‘winning’ leg as long as possible.

Let’s take CROX, reporting Wednesday (5/7) after the close, as a concrete example:

1. Straddle bought Wednesday (5/7) at the open.  May 2008 10. Calls @ 0.9/contract coupled with May 2008 10. Puts @ 0.85/contract.  Not much action in the stock’s price during the day, so kept them all heading into the announcement.
2. Posting a better than expected Q1 and a good outlook, CROX exploded up over 10%.  Picking the ‘direction’ in these cases is easy!  Sold puts immediately at Thursday’s (5/8) open @ 0.10/contract, booking the 90% loss on those.
3. The calls were showing profits of over 150% at the time, so I simply set a stop to guarantee a net profit in the straddle, while giving the calls as much wiggle room as possible…  Went with my usual ~30% trailing stop, which translated to 0.30 in this case.  Just a little over a half hour later that stop was hit and the calls were sold @ 1.95/contract (116% gain).

The overall profit on the straddle was 17%, which isn’t bad for 1 days’ of auto-pilot work with a low-priced stock.

HANS was almost a carbon copy of the CROX trade but with the calls & puts reversed.  I drank a Java Monster in celebration.  (Let’s hope they don’t take it, and its lower margins, off the market.)

I do prefer it when I can let the ‘winning’ leg run a bit longer than 30-40 minutes, as it tends to result in higher profits.  Even better yet is when there is a bit of a pre-earnings pump, allowing me to sell part of the position and guarantee a profitable trade even before any numbers are announced.  But an example of that will have to be left for another day…

The past 12 hours have been just about the busiest of my life…so the detailed straddle/strangle trade strategy post has been delayed until later tonight.  Right now there’s only time for a quick update:

DP Sells:

• Closed out [[CROX]] & [[HANS]] straddles, selling the losing legs at the open & the winning legs a bit later, to lock in profits in both.
• Sold the calls from the [[CELG]], [[CSCO]], [[OMG]] straddles.

DP Buys:

• Took a small position in [[BBBY]] calls, anticipating a hold of support @ $32-32.50.
• Puts in [[MER]], [[XL]].  Death to financials!
• One more round of earnings:  straddle in [[AIG]], strangles in [[NVDA]], [[PCLN]], [[TRLG]]-(best jeans ever!).

QUICK NOTE:  I’ve been on fire with earnings this week (after picking several duds last week).  AIG, CROX, HANS, PCLN, OMG all with 10%+ moves…easy money!

While The Fly was out moving markets with SKF lots, I was quickly getting out of bullish positions, booking available profits.  Not counting those, I ended the day pretty much flat, with AMZN puts balancing out any losing positions.

DP Buys:

• Throwing some darts with earnings straddles in [[CELG]], [[CROX]], [[HANS]], [[OMG]].  CROX & HANS are looking good, with 10%+ moves after-hours.  The other 2 report tomorrow morning.
• Limit order for puts in [[AMLN]] filled just before the closing bell.

DP Sells:

• [[STP]] calls stopped out for a decent gain, despite the positive news.
• Remaining calls from [[EOG]] straddle stopped out to protect a (very) minor profit.
• Booked a loss on [[VIP]] puts as it was experiencing whatever the opposite of the ‘homo hammer of death’ may be.  Did I miss some news on this?
• The big winner was [[DVN]]…half of those calls were sold yesterday, and I sold the other half this morning for essentially the same price.  Booked 100% profit on the position, my best ‘win’ in 2 months.