MyTradingBlog

Several possible trades to consider:

• PCLN, 50 day SMA is 500.  PCLN has almost never fallen below 50 SMA, except during the flash crash.  A spread of 495/500 carries a relatively low risk.  Long 495 May 13 put, short 500 May 13 put, profit $.675 (15.6% return in one week).
• NFLX: 50 day SMA = 225.64.  Current price: 229.47.  Spread of 220/225: cost: 3.775, profit: 5 – 3.775 = 1.225 (1.225/3.775 = 32.5% return in one week).  This trade is a bit riskier, with a higher return as well.  In the last 2 years, NFLX has dropped below 50 day SMA only a few times and then quickly rose above this strong support.  If you have guts, this is an interesting trade.
• FFIV ($100.9): this stock has been bearish since 1/11’s poor earnings report.  The last earnings report was great and the stock price shot up from below 20 day SMA to at the 50 day SMA.  But it failed to rise and stay above 50 day SMA.  Now it’s stuck between 20 day and 50 day SMA (98.94 and 102.15).  Although I don’t believe FFIV will be able to rise above 50 day SMA anytime soon, it’s unlikely to fall below the 20 day SMA easily either.  Its May 13 put spread of 95/97.5 costs $2.1, profit $.4 (or 19%).

All our spreads of this week were successful.  We made $30/contract on FFIV, $32.22/contract on NFLX.  As a result, this trading account that was started only 6 weeks ago (3/25/11) has increased its portfolio value by 50%.

The main trading account is up so far 35% this year.

The markets are experiencing some profit taking and consolidations after a very nice bull run.  Several issues are approaching our strike price.  These include OPEN, NFLX, FFIV and LVS.

1. OPEN: We started a position on OPEN on 3/21/11 with a covered call (April 16, $90), cost 86.8.  On 4/14/11, OPEN was above 104.  We rolled up the April call to May 21, $90, for an additional profit of $2.7.  This effectively brought our purchasing cost of OPEN down to $84.1.  After disappointing earnings of yesterday, OPEN is trading around $90 now.
2. NFLX: We set up a spread (Long May 6 $220, short May 6 $225).  225 is NFLX’s 50 day SMA which has supported NFLX for the last 2 years.  NFLX is now around $229.  We have 2 more days to go on this.
3. FFIV: We set up a spread (long May 6 $95, short May 6 $97.5).  FFIV has been bearish since its Jan 2011 earnings report.  It’s been under SMA 50 and 200, but above 20 day SMA (98.31) which should be its short term support.  FFIV is now around $98.  Our overall positions on FFIV is net short.
4. LVS: Missed its estimates and the shares are beaten down to $43 from $47.  We are net short on this.

Another profitable week.  Other than the covered calls that are already set up, I also traded a few short term spreads.

1. BIDU: I set up a call spread (long 135/short 140) in one account ($85.00/pair of contract) and a put spread (long 135 put/short 140)($88.00/pair of contract) .  BIDU finished this week above 140 (at 148.52).  Both trades made money.
2. NFLX: the put spread was successfully set at below 50 SMA, hence the put spread expired worthless, creating a $66.72/pair of contract profit.  The choice of 50 day SMA was critical, as NFLX chart shows 50 day SMA as a strong support line.
3. FFIV: FFIV finished the week above $100 (at $101.36), hence the FFIV put spread of long 97.5 and short 100 successfully expired worthless.
4. LVS: I also traded a LVS 44/45 put spread both of which expired, creating a $1200 profit.
5. Total profit from these spread trades is ~1.12%, not including the longer term covered call positions.

BIDU reported good earnings and good forecast.  Today BIDU shares are up a bit.  Our BIDU spreads (135/140) are making money.  Two points to take home with:

1. BIDU is not as volatile as used to be, reflected by the smaller price movement post earnings, unlike other tech concerns such as nflx, pcln etc.  This suggests that BIDU’s biz model is more mature  and its market leadership is unchallenged without a formidable competitor on the horizon.  As a result, BIDU’s time value will decrease.  This stock is a safe but less profitable one going forward for strategies focusing on premium selling.
2. When placing a trade, one needs to take into account all variable factors such as overall market condition and individual stock chart pattern.  In the case of BIDU, 1. China is a growing and stable market; 2. US market is bullish; 3. BIDU’s chart is near perfect (reflecting its multi quarter good earnings).  Statistically, the chance of BIDU having a bad earnings report is low, hence my spreads trading.  It’s all about statistics.