Options Trader: Monday Morning Ideas

by: Philip Davis

Well nothing blew up (other than a few thousand miscellaneous shells traded by Isreal and Lebanon) so the pre markets are all excited this morning.

Oil is down a buck in Europe and gold is off a touch but most of that is due to a surge in the dollar which hit some overhead resistance as it hit key low technicals against they Euro and the Yen.

The Dow will have to contend with heavy resistance of its own at the 200 dma of 10,943 while the Nasdaq and the S&P are far enough out of the money that no one day rally can possibly put them in bull mode. Our best indicator is once again the NYSE which is just below 200 resistance of 7,973 and also faces a death cross of the 50 dma if it heads any lower this week.

The world markets are generally on hold waiting to see what we will do and it is likely we will get some kind of rebound today but in hunting for bargains this weekend I came to the terrifying conclusion that there is still a long way for many companies to fall. When we talk about the tragic drop offs we have had this year they are generally a pittance compared to what happened to certain stocks in the first half '04.

Still I think we are ripe for a proper turnaround if we can get through this earnings season without any major disappointments. AMD's purchase of ATI is a signal that tech is just getting too cheap and HCA is going private after dropping down to its 2004 mid-point.

We need to watch the action on the NYSE very carefully today as well as the broad indicator has been very reliable this month and looks ready to break either up or down out of the range between the moving averages. Secondary resistance will come at 8,011 and a break above that level will get me to buy things but not much else.

Only the Nasdaq currently looks really oversold (as opposed to making a mild correction) with the SOX looking way oversold so we need to look to these indicators on a turnaround. If people are ready to forgive Dell and embrace TXN we just might be able to get something going.


Oil fell off the mark on Friday and many oil companies will be reporting obscene profits shortly but I will play the CVX Sept $60 puts for $1 on the off chance the oil market collapses.

MRK put up very nice earnings and the Oct $40s are just .60 as no one really thinks they can get that far but I like it for a momentum play.

As expected, VOD turned in nice numbers and our Aug $20s were already $1.10 (up 15%).

HAL got clobbered last week (and may continue down) as the anticipated spin-off of KBR is a no-go. If HAL doesn't stabilize with its p/e around 16 then someone may notice SLB is a little overpriced with a p/e of 31. This is a "hit 'em where they ain't" play as no one is thinking this but I like the Nov $55 puts for $2.20.

BLS had huge 2Q profits but no one cares because they will be a part of T who reports tomorrow so I have to pick up the T $27.50s for .55.

LVS (8/2) wants to spend $8Bn in Macau and the fact that the Aug $60 puts are $2.25 speaks volumes for the market sentiment on this one. I like selling those puts and buying the Jan $60 puts for $4.70 as they will either tank now and you will pick up the premium or eanings will be manipulated up and you will be able to sell some more next month.

TXN has not reported as of 9am so, on positive earnings the $27.50s might make a great momentum play. The should have roughly a .70 premium. On really good news I will grab the $30s, currently .35 as this stock has miles to go up if they pull out the numbers (must be a 10% beat!).

If you miss TXN and TV chip sales are strong then GLW is the other side of the play with the $22.50s at $1.10.

AMGN had very nice numbers, turning a positive after taking a $1.1Bn charge on the acquisition of Abgenix. The $67.50s are very reachable at $1.20.

PETS is an old favorite we made a killing on in February and was trashed with the rest of the market but they beat by 10% on 34% better revenues. The $12.50s are a possibility at .20.

VZ (8/1) just keeps adding customers with another 1.8M in Q2. With the $32.50s at .45 I love this play and you can even insure with the $30 puts at .15 if you don't trust me.

Have fun today, but keep a very close eye on the technicals as they could signal a very bad turn!