Options Trader: Wednesday Morning Ideas

by: Philip Davis

War! Nuclear war! Wow, talk about a fear factor, this is all they are talking about on the news...

Did you ever imagine we would be worried about North Korea attacking us? This will be a major test of market resolve, not today, but tomorrow if we get a bounce. It will also be worth watching today's levels as we have many crosses to bear.

How low will the Nasdaq go? Will it hold 2125, where it began Thursday? The Dow is resting just above the 50 dma of 11,185 and the S&P is just above its 50 of 1,275. We should open below both of those marks and the real question is can we get back over it? The NYSE is also just above its 50 at 8,200.

We have indications from ADP that jobs numbers will be a blowout this month indicating the Fed is far from done but everything needs to be on hold while this Iran/Korea thing plays out.

We will now see how high gold can really go, but I would be taking this week's profits off the table as this initial reaction is usually an overreaction. AU and MRB are still the lagging gold stocks and AU $55s make a momentum play at $1.95.

Oil, surprisingly, is not going up on this new threat -- yet another indication that we need actual supply interruptions to push past $75.

It goes without saying that we will have a weak open today. If we hold our technicals it might be a great time to pick up all those stocks we missed last week on the gaps. All of last week's picks are still in play on a pullback as long as we don't break further down on the 50s.

I'm still sitting on my GM puts and DIA puts from Monday afternoon but I'll be getting out of both if there's even a hint of the market holding up. My problem with this "rally" is the same as it has been, we never hit a good bottom and we are just barely at the Fibonacci retracement point, not quite enough to confirm the bulls.


Cash, cash, cash and gold are the only things to hold in a panic but the reality is that the long-range missile test failed, so Korea really only poses a threat to its neighbors. But that in itself will be enough to give us a week-long crisis.

Defense stocks should do well, but I wouldn't chase them. I'll be mostly watching today to see who holds up and who drops off for signs of weakness and strength. Rather than getting wrapped up in trades, a day like today is a good chance to check out the horses before the 2nd half of the race.

Those TRMPs we picked up on Friday will really pay off today as they actually did close all the casinos this morning. HET and BYD will also be affected but this is essentially Trump's whole operation with 4 casinos being shut down until NJ can balance their budget. The Jan $20 puts held $2 on Monday and I will be looking to take profits off the table quickly and turning around and waiting to buy the calls if they are back in business this week.

The GM/Nissan rumor continues to gather steam so I will be taking the money and running today, waiting patiently for my next short opportunity. Hey, sales were only down 26% in June - looking good!

WMT $47.50 puts are already .55 (up 60%) but the Aug $47.50 puts have only gone up 33% to $1.05 and are still playable.

MRVL is getting hammered on options issues (does everyone cheat?) and the SOX will continue to be a drag.

It will be interesting to see how the builders hold up today as the economic news indicates continuing strength and strong jobs leading to higher rates. So people will have money to buy homes but will they balk at the rates?