February 9, 2016 - MDT Alert (SFLY)

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.

Today I would like to make a suggestion on a company that reported earnings last week. That company is Shutterfly, Inc. (SFLY).

They issued a beat by 2 cents, but had mixed guidance.

From a technical standpoint, SFLY gapped down off their earnings and have moved up to almost fill the gap.

The weekly price action was quite weak and I am banking on the assumption that it will follow through to the downside.

If it does, I have price objectives down to the $32 to $34 range.

With SFLY trading around $39 as I write this, this could produce a nice return.

I am going to suggest you use the front month options, which expire on February 19th. They do not have weeklies.

The options are a bit thin, so I will suggest you limit this trade to no more than a .5% allocation, which on the nominal portfolio is around $500.

Here is my suggestion:

Buy to Open (2) February 2016 $40 put @ 1.90

Buy to Open (2) February 2016 $37.50 puts @ .65

Based on the fills and the recommended allocation, the total investment works out to $510.

The idea will be to close the $40 if the price drops to $37.50 and let the long $37.50 puts in place to the price objective.