I laid out some new rules last week on how we were going to exit plays. The market spike followed by Monday's decline gave us the opportunity to test this theory.
The game plan on busted plays is to leave the long side of the play open. If the play reversed direction on us then hopefully that new directional trend will continue for a few days.
The Greenbrier put spread play looked good on Thursday morning but Murphy is alive and well. On Thursday afternoon, Friday and again on Monday the stock imploded to lose almost $9 on no news. Somebody is selling GBX and doing it in volume but there are no headlines to explain the move.
We were stopped out of the short put side for a 67 cent loss but the long put side has improved from .23 cents to $1.40 for a gain of $1.17. This is how it is supposed to work. On busted plays we want the reverse move to continue so the long side offsets the losses on the short side.
While it will not happen on every play it will happen from time to time and this will offset the small losses we take over time.
I am going to add another May play today with a bearish perspective. Apple reported earnings after the bell and easily beat but it only gained just over $1 in afterhours and the futures went negative shortly thereafter. We could be headed for some more negativity ahead of the FOMC meeting on Wednesday.
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Current Position Changes
Stop Loss Updates
Check the graphic above for new stop losses in bright yellow. We need to always be prepared for an unexpected decline.
GBX - Greenbrier
Greenbrier fell off a cliff on Thursday afternoon and was still falling on Monday. We were stopped out of the short side for a 67 cent loss. However, the long put is doing exactly what we hoped and has erased our overall loss.
I am putting a stop loss on the put to prevent giving back our gains.
Short May $60 put, entry .73, exit $1.40, -.67 loss
Long May $55 put, entry .23, currently $1.40, +1.17 gain
Add stop loss to the long put of $58.45
GDX - Gold Miners ETF (Bear Call Spread)
The sharp drop in the dollar caused a $30 spike in gold prices and a corresponding spike in the Gold Mining ETF. This stopped us out of the short side with a 23 cent loss. The long side with the $23 call is still open but it is too far away to do us much good unless the dollar breaks support. With the FOMC meeting on Wednesday that is not likely.
Closed Short May $20.50 call, entry .25, exit .48, -.23 loss.
Retain the long May $23 call, entry .04, currently .02.
BBBY - Bed Bath & Beyond (Bear Call Spread)
Retailers are losing altitude as jobless claims rise, economic numbers weaken, retail sales are weak and wages are slipping. Gasoline prices are rising again and that temporary windfall for consumers is starting to erode. There has not been any specific news on BBBY but on April 9th the company reported earnings that only met expectations. Bank of America reiterated its underperform rating saying share buybacks were the only reason the company met earnings. In the future the cash drain was not going to be able to keep up the same pace of buybacks and earnings would suffer. Free cash flow had unexpectedly declined and the analyst was bearish on the stock. After declining more than 5% on the news the stock has continued to slide lower and closed at a six month low on Monday. There is no excitement in the investing public over BBBY.
Earnings June 24th.
Sell short May $75 call, currently $1.95, stop loss $72.85
Buy long May $80 call, currently .50, no stop loss.
Net credit $1.45.
Existing Play Recommendations
Links to original play recommendation
$OVX - Oil Volatility Index (Bear Call Spread)
RCL - Royal Caribbean (Bear Call Spread)
GDX - Gold Miner ETF (Bear Call Spread)
JKS - JinkoSolar (Bull Put Spread)
GBX - Greenbrier (Bull Put Spread)
Prices Quoted in Newsletter
At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.
The prices quoted in the newsletter are the end of day prices in most cases.
When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.
For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.
For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.
All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted please let us know.