Yesterday, the largest option trade of the day in TIF occured just before the market closed at 3:39 pm, a 65/60 put spread and was purchased for about $0.94.
484 contracts to be exact and look… The price at the moment is 59.89, if they sell now, that’s $150,000 profit or they could hold out for $196,000 if they think at expiration TIF will close under 60. I’d hold out.
[10h05] It’s very ugly this morning. We’re 1 hour into the opening and down over 3%… Bonne Courage.
[13h45] Now that we’re getting closer to the US open I could use the word “carnage”. But the market often surprises me and if this is a bear trap it’ll be a good one. I’m going to stick a post-it on the middle of my screen which says “patience” today! A fair number of traders looking for a bounce after Mr. B. speaks. Strange… Or is it Factory Orders at 10h? Traders will be buying into any good news today, but the half-life risks to be short.
[14h15] Read this on the WSJ blog: “allegations by the Senate finance committee that some hospital companies had gamed the Medicare system.” duh… But I’d like to read more Mr. WSJ. Who is reporting that? Oh you are, but only on the pay side of the site. Interesting…
Now is the perfect time to sit back and reflect a bit on a trading style. That’s the reason I bought this book by Michael Martin. I like to focus a bit on one or two specific trades/spreads and take some perspective on the environment we’re trading in. It’s an especially good time because it looks like the market (SPY) is trading in the middle of a range.
One of the names I’m concentrating on for this exercise is Tiffany & Company, TIF. I’m watching October expirations and regular readers will have seen the entry on TIF and the follow up.
The context, atleast as I see it:
Europe is scrambling and optimism obviously will be short lived and sporadic. This scramble is a good news, it starts to feel Eurocrats are getting the message. What’s interesting to me about Europe is it’s parroting of QE x under vastly different circumstances. The complexity of the problem surpasses my grasp, but I do enjoy observing the parrellels and contradictions. As often the case, the US press is pedalling an end-of-world catastrophy while the European press ruminates over less extreme scenerios. I’m sure the reality lies somewhere between.
Copper and Commodities are falling. People are looking for cash?
Trends are moving downward on a 3-6 month time scale and surfing a channel on a 1 month time frame.
Volatility is holding up over 40. The positive headlines, are having less and less impact.
So back to Tiffany & Co.
It’s fallen about 7% today even on an up day. This trade is working out well so far. The question now is how should I protect my profits? Do I want to add to my position? I’m not ready to close this position because I see some great lower resistance around $57.50.
The 65/55 spread is worth ~ $3.00. I picked it up for ~1.80.
I’m watching 57 and 73 as my exit and bail alarms.
I’ve been trying to figure out how to manage this TIF spread I wrote about yesterday. That bear spread would have been better today. It would have cost about ~$1.40.
$TIF topped out at a resistance of $73 today, then pulled back. It looks like you might see resistance at $78 in the short term and it filled a gap today. I still like the short setup.
The question I was asking myselft today was: do I wait for this to test the $73 resistance before adding to the 65 puts? Or do I add some more, at $72? I might be wrong, this is a bit of a long shot, but I’m looking for $TIF to retest the $65 level and fall below.
I don’t buy the bull’s argument today, and expect some more downside. The rumors and optimism out of Europe seems pre-mature. Nothing concrete has changed, no plans have been presented, nothing but a press conference and property tax increases in Greece.
As I’m writing this I can see the correlation to the S&P, and in fact you could play the S&P as well, but…
Judging from the volumes on the October contracts for $TIF it looks like there were two relatively large Bear Spreads open.
There’s a 70/62.50 and a 65/55.
I like the 65/55 spread, and the 6 month chart below will give you an idea why.
The trade will cost you about ~$1.85 and the max profit if $TIF closes under 55 would be ~$8.00.
Both of these might be hedges against a long stock position, but I still like this trade. The headline risk which Tiffany faces at the moment, will be any weak news on upscale consumer spending. That seems more and more likely to me, especially if we’re going to tax the rich… The other element which I find curious is the extreme divergence with Nordstrom ($JWN) today. ($JWN up 4%, while $TIF is down (2.3%), this is uncommon. Look at the divergence today on the 5 day chart.