Options Trader: Tuesday Wrapup

by: Philip Davis

What a silly market!

I suppose the huge run-up had something to do with the drop in oil as the gains started once the NYMEX closed in the red (usually they manage to pump something at the end) but, oddly, the oil stocks pulled a big recovery as well.

I got stopped out of my XOM puts at .75 for a mere .15 gain as I was away and couldn't catch it in time. The Dow made it to 11,100 - very nice but the S&P just couldn't give us the one point we needed to confirm a real rally. The NYSE looks strong at 8,149 while the Nasdaq is still over 50 points away from challenging the 50 dma and another hundred off the 200 after that.

The SOX did not come through today, even though TXN added another 4% and SNDK was up 15% so forgive me if I don't have my rally cap on but overall the end result was very good today.

Oil dropped all the way to $73.75 ahead of tomorrow's inventory while gold held essentially flat against a strengthening dollar.


There was nothing to buy today as the S&P never made it over our 1,269 target (other than a brief spike on the closing madness) so please take gains and losses with a grain of salt.

HPQ had a great day but then blew it by overpaying for Mercury Interactive by $1.5Bn ($4.5Bn total). In case you forgot, MERQ was an early victim of the options scandal, losing the CEO and several managers and getting delisted from the Nasdaq. I don't mind this deal but $52 is more than this company was worth before they got in trouble! I don't even want to look at the HPQ $32.50s, which closed up 30% at .90 but may be worthless tomorrow! A stop will not help us on this one....

TM had a rockin' day and the $105s shot up to $2.15 (up 70%).

GM is going to be a hoot tomorrow morning! The stock shot up 3% to $30.66 ahead of earnings.

XLNX had good earnings but lowered guidance and will not be a pretty picture tomorrow but I'm still a believer as they have already been sold off over the option scandal which has now been booked as a $1.5M charge and should be the end of it. If we assume a 20% drop from earnings they should still end up around $22 once they stabalize.

GE went nowhere, which should have given us a clue to stay away.

This was the right day to enter PEIX as it jumped 3.5% netting $1.30 for the $20 calls.

Still no movement on the LVS Jan $60 puts as the stock jumped up today for unknown reasons (pretending that manipulation is not a known one) and it might be a good idea to take the $60 puts we sold off the table for $1 to lock in a 25% profit, looking to exit the trade if the stock crosses $70.

We got a great buy signal on our oil puts from Valero at 10:20 but were forced out with very small profits by 12:15 when the patch turned sharply higher but by 2:30 we were very glad to be out as the oil stocks moved away from the actual price of oil.

There was little follow through on yesterday's winners so I think today was simply a catch-up rally for the laggards who missed Monday's action. This evening's earnings are mixed at best so it will be interesting to see if the market is in a forgiving mood tomorrow.