Options Trader: Thursday Morning Ideas

by: Philip Davis

Well it looks like my Sony play is working with the Nikkei up 400 points in reaction to yesterday's rally in our markets. All of Asia posted strong gains while Europe is having a nice, but not spectacular, follow through to yesterday.

Follow through is what we will be looking for in our markets as we have been burned before by false rallies so it will take something significant to get serious money back into the markets. DHI had a huge beat this morning and Apple was amazing with many other earning reports sounding nice enough to keep a rally going. If we don't get a good day today then sentiment is still too negative for a rally, we are no longer oversold so we will get a more realistic idea of market direction today than yesterday when there was a lot of short covering.

This will test my conspiracy theory that the Nasdaq was forced down unnaturally and that we can ignore the very bad looking charts that show the 50 dma crossing under the 200 dma.

The Nasdaq has miles to go before retesting the 50 dma at 2,150 but let's see how it handles 2,100 first. The Dow blew through the 200 dma at 10,939 and will hopefully make it to the 50 dma of 11,092 by tomorrow (Microsoft willing). A Dow drop back below the 50 would be devastating for the markets. The S&P is running into the cross of the 50 and 200 dma at 1,264 and that will be the one to watch today and the NYSE is just under its 50 of 8,104.

We have the potential for a huge rally from this point if we can move past these technicals. The oil patch should at least stay flat coming into the weekend and miners should have continued strengh on what looks like a strong global economy (the one I kept talking about while everyone said I was crazy) and neverending Chinese demand.

Oil should stabalize into the weekend and gold will do whatever the dollar does. The only thing we have to fear is bearish talk from one of the Fed governors who may want to cool the markets before they get too crazy or, as usual, the Mid East, Iraq, Iran, Nigeria, Hurricanes, North Korea and Bird Flu (remember that?).

We don't have to fear those nasty stem cells curing people as Bush vetoed the 60% will of the people yesterday but I don't think it will hurt biotech much, they can still do research overseas in more progressive countries and once there is a serious cure that requires more cells, you can bet that political football will be fumbled by anyone trying to stop tiny bald children from living in favor of already dead embryos.

Bernanke speaks again today and the morning could go either way so be extra careful out there!

It would be very normal to see some profit taking today so I'm going to be happy with anything other than down but there is no real rally until we start taking back some technicals and that may be a tough trick into the weekend.


I'm not buying unless we get a cross on the S&P and the NYSE so let's keep our eye on that as well as GE, TXN (7/24) (which did nothing yesterday) and PFE who did pretty good but not great.

We also need to see if Yahoo is forgiven but Google and Microsoft earnings will trump all tonight.

It's better to see how mediocre earnings are treated than to watch the headliner as that gives you a better idea of the market's mood. Hopefully we will get another day of tech leadership as the Nasdaq has plenty of room to bounce (75 pts) before hitting any real resistance other than the psychological 2,100. Let's also watch the Dow to hold 11,000 for the same reason.


NOK did very well but are losing share to my main man MOT, this is no reason to sell them (the same logic I have wih Yahoo - just because you're not #1 doesn't mean its a bad stock) so I will pick up some NOK Oct $20s if they can be had for under $1.

MRB is still lagging the gold patch and is a good buy at $2.92 if gold retakes $650 and NAK gained close to 10% since I repicked it on Tuesday but I still like it at $8.30 but getting out if it falls below the 50 dma of $8.25 (so this is a very low risk trade as long as you don't buy so many shares as to be illiquid).

Not all homebuilders will beat but I like BHS $25s for .65 prior to today's earnings as they are still trading 60% below April's high. This is a big gamble but as far as I can tell they didn't warn about earnings, just about orders which will impact later. This is a no trade if DHI doesn't open well up.

TRMP weathered a big storm and is the sector is in recovery so I like owning the stock at $19.05 and selling the way overpriced Aug $20s for $1.35.

We picked the dead bottom on SHLD on Tuesday but I still like the stock to recover further but the options are so pricey I prefer to own the Jan '08 $135s for $32 and sell the Aug $145s for $5.70 (15%) as a nice income producer. The 200 dma is $132 so we should have a good escape hatch if needed.

MRVL was at $53 just a month ago so I'm hoping they didn't cheat too much on options and picking up the Jan $40s for $4.50 and selling the Aug $42.50s for $1.05 (25%).

PTEN (8/3) is a real bargain at $25 if oil can hold $70 and the Aug $25s are not bad for pre earnings at $1.15.

RICK was a great call through this lousy month but it's time to take profits at $7.25 (up 25%).

Thriving sales at MOT and NOK should translate into good news for VOD and the Aug $20s are being given away for .95 but lets make sure thats the bottom today (I would rather pay a little more as it crosses $21).

I'm pretty sure Google will beat but the option prices are out of control so I'd rather wait until tomorrow to play the momentum as the premiums deteriorate into expiration.

I should have thought of TIF and COH yesterday as the luxury goods buyer is far from dead. TIF Nov $25s are $1.20 while COH Aug $27.50s are $1