Exits, 10/21/2023
How we did on the trades we exited this week.
Dids/Pexels
This Week’s Trade Exits
As soon as I exit a trade, I note that in the comments of the post where I first mentioned the trade; at the end of the week, I try to track them all in one post. These are the trades I this week:
Stocks or Exchange Traded Products
None
Options Trades
Put spread on Zions Bancorp (ZION -6.58%↓). Entered at a net debit of $0.75 on 5/26; will expire worthless. Loss: 100%.
Puts on Zions Bancorp (ZION -6.58%↓). Bought at $1.90 on 6/2; will expire worthless. Loss: 100%.
Put spread on Glacier Bancorp (GBCI -0.70%↓). Entered at a net debit of $0.55 on 5/25; will expire worthless. Loss: 100%.
Puts on Glacier Bancorp (GBCI -0.70%↓). Bought at $1.20 on 6/2; will expire worthless. Loss: 100%.
Call spread on Evolution Petroleum (EPM 0.00%↑). Entered at a net debit of $0.93 on 6/14; will expire worthless. Loss: 100%.
Put spread on G-III Apparel Group (GIII 0.00%↑). Entered at a net debit of $1.15 on 9/6; will expire worthless. Loss: 100%.
Calls on United Airlines Holdings (UAL 0.00%↑). Bought at $0.85 on 10/16; will expire worthless. Loss: 100%.
Call spread on Tesla (TSLA 0.00%↑). Entered at net debit of $0.99 on 10/18; will expire worthless. Loss: 100%.
Call spread on WD-40 (WDFC 7.88%↑). Entered at a net debit of $3.20 on 10/19; exited at a net credit of $1.65 on 10/20. Loss: 48%.
Short puts on Evolution Petroleum (EPM 0.00%↑). Sold for $0.80 on on 9/13; exercised at $7.50 on when the stock was trading at $6.52 on 10/19, so I own the stock at a cost basis of $6.70. Since that’s 27% above the current share price, we’ll call this a loss of 27% (though I expect to profit from these shares eventually). Loss: 27%.
Call spread on Elevance Health (ELV -1.57%↓). Entered at a net debit of $1.93 on 10/17; exited at a net credit of $2.45 on 10/19. Profit: 27%.
Put spread on Telefonaktiebolaget LM Ericsson (ERIC -1.11%↓). Entered at a net debit of $0.25 on 10/16; exited at a net credit of $0.40 on 10/18. Profit: 60%.
Comments
Lots of losses, which sucks. Lets see what we can learn from them, and how we can improve our process going forward.
Exits 1-4 were regional bank stocks we bet against based on a banking expert’s view that the ones most likely to have tapped out their federal rescue line and also had the most underwater securities were the ones most likely to go bust. It could be he was wrong, or it could be that he is right, but his thesis will take longer to play out. I need to investigate this more before adding new bets against banks.
Exit 5 was a bet on a stock that looked solid both fundamentally and technically. I think it is still solid fundamentally, and am comfortable holding the shares I was assigned. It may be that these sorts of small but fundamentally sold stocks are better to buy after earnings, as their earnings are more variable, and we can get better deals after an earnings miss (we did this recently with an oversold gold miner).
Exit 6 was an apparel company from last month, GIII. The previous quarter social data was bearish on it, and we made money betting against it; this time we didn’t. This one may have been a beneficiary of one of the three macrotrends we mentioned a top trader highlighted recently, specifically “the persistent demand for luxury goods across the upper 3 quintiles of earners”.
Exit 7 was UAL. This was a case where our metrics were correct in predicting strong earnings, but the stock got hammered based on negative forward guidance relating to the Mideast war (a ban on flights to Israel hitting the bottom line). We took the opportunity to add another, longer term bet on UAL after its earnings miss.
Exit 8 was Tesla. It missed on both top and bottom lines, and Elon Musk’s comments about margins and the cyber truck weren’t encouraging. In this case, the one metric that got it right was Zack’s Earnings Surprise Prediction, which we discounted in light of other, positive metrics. I’m still bullish on Tesla long term, but the post earnings drop wasn’t enough to make it attractive here.
Exit 9 was WD-40. On this one, our metrics were right, but I messed up the trade. My initial idea was to open a $200-$210 call spread, which would have been profitable, but when I couldn’t get one for less than half the width of the spread, I went for a $210-$220 spread. Lesson learned.
Two other trades we entered but didn’t get filled on our worth mentioning here. On US Bank (USB 0.00%↑) , our metrics were correctly bullish, but we didn’t get a fill. On Netflix (NFLX 0.00%↑), our metrics were incorrectly bearish (including Zack’s ESP, in this case), but when we saw its RSI drop into oversold territory, we didn’t chase it. It ended up spiking post-earnings. RSI remains powerful, but it’s worth noting UAL was in oversold territory when we placed our bullish bet on it this week; but the negative war-related guidance trumped everything else.
We’ll try to incorporate the lessons from this week as we assess next week’s earnings trades.
A Lower Risk Way To Invest
As you can see above, options trading (particularly earnings trades) can be risky, which is why we’ve been using small dollar amounts for these trades. That said, two points:
I put my own money in every trade I write about here, and I need to make more money, more consistently, if I am going to keep doing pre-earnings trades. I’m working on improving my approach, but it’s possible this goes in the too-hard pile. If so, we’ll shift our focus more to post-earnings bargains and other situations that look attractive.
You don’t have to do this. Trading isn’t for everyone, and most probably don’t have the risk tolerance for it. You can follow our core strategy, or use our hedged portfolio method instead, both of which have generated solid results recently.
