Options Trader: Wednesday Morning Ideas

by: Philip Davis

This may be a better test of market resolve than yesterday was.

Amazon had disastrous earnings, GLW was a huge disappointment in outlook, HP decided to go shopping, XLNX guided down...

We will see today just how forgiving the market can be today. We will hear from BA, BUD, BIDU, BIIB, BEAV, BDK, BXP, BOBJ, BVN and many other letters of the alphabet today but that gives you an idea of how significant today's earnings will be.

Asia was mixed with the Nikkei giving up 125 points at the close despite Honda's net rising 30% and Matsushita (Panasonic) posting a 7% gain on strong TV sales while Sharp also sees a strong consumer market. Europe is flat, waiting to see what the American markets do before committing.

Oil is holding back from the brink on concerns about Nigerian production levels (I think they need to learn a new song at this point) but inventory will tell the story today. The last two weeks were the most expensive oil weeks ever with and average of $76.50 per barrel so we will see if there are immediate demand fluctuations.

If an oil move is real, it should be followed by gold but gold is flat, even coming into the Asian wedding season where consumer demand is strongest. This is not a change in my belief that gold will go past $800 but an indication that the fear premium in oil is way overdone.

This is the weakest earnings day we've had so far and will be a real test of the markets. We held our marks yesterday and doing so again today may get some bears out of the market. Let's make sure the Dow holds 11,100, the S&P still needs to break above 1,270 (yes I added a point) and the NYSE needs to hold 8,100.

As I said yesterday, the Nasdaq could gain 100 points and still look worrying so let's just watch the 2,100 mark for a psychological positive but really watching the SOX which haven't even made what you could call a bounce yet.


I'm watching and waiting today but, on a positive move I will be looking to grab some picks that went the wrong way from yesterday. We need to see if UPS is forgiven as well as Dell and BNI to get a measure of market confidence in the second half of the year.

MT was, as predicted, a slow mover yesterday but will likely explode out of the box today as the company announces it finally has a final deal with Arcelor. Our play yesterday was the $32.50s for $1.20 but I'd be selling on the opening run-up rather than chasing as they are still paying a heck of a lot o money.

GM "only" lost $3.2Bn this quarter and the stock is going crazy! That compares to a loss of $987M last year so I have to believe that my dictionary is just wrong about the definition of "turnaround." By excluding pension buyouts the company is showing a strong operating profit for the quarter but this does not change the uderlying fundamental problems this company faces so I can't wait to hear this conference call!

BA missed by a penny and guided a hair lower than estimates had hoped but in general this is a very strong company. Don't forget BA opened Monday at $78 and ran up on high expectation so there is nothing to be read into a drop back to $80 (if it even goes that low). In a quick look at the numbers I would put these earnings in the "sounds bad but are actually very good" category and I would like to pick up the Sept $90s on any morning dip (were $1.10 yesterday) or perhaps the $85s if they get cheap enough.

TASR earnings tripled but that just wasn't good enough as rounding down caused them to "miss by a penny." This is one of my pet peeves in the way analyst look at small caps as two tenths of a cent in earnings can wreck a forecast. This just makes TASR a much better buy as that dropped .48 of a cent will come back the other way next quarter. If the premium gets wiped out on the opening drop I would like the $7.50s but I still like the Jan $10s as we have 2 more quarters for the new orders to get shipped. Watch the movement around the 10am earnings call for a good indication.

COP had a beat and it will be interesting to see how excited people get about this one as they have had a very tough time with $69. On the last earnings release the stock shot up to $72 before crashing back to $57 over the next 60 days. I would be very happy to pick up the Sept $70 puts for under $2.

NSC missed earnings even though revenues were very good. Looks like poor management to me but coupled with UPS's miss yesterday and good companies like BNI and YRCW will be held back in sympathy. BNI $70s for under $1 are a good buy.

BTU is up 10% from Monday's pick and the $50s are already $1.75 (up 75%) so you might want to consider profit taking if natural gas prices fall. I'm taking half off the table and letting the rest ride with a $1.25 stop.

AXP $52.50s are just .65 and I still like them as long as the stock doesn't go negative today. I think it's consolidating for a run at the 200 dma of $52.

TEVA continues to rock and roll and sees to be a proxy for how well the war is going for Israel.

EBAY is looking bottomish to me and the Sept $27.50s might make a nice play at .50 but I'm only taking a 3/10 position until it breaks $25 where I expect to buy another 2/10 at .70. The rest is saved for the Octobers if I am wrong about this one!

I wish I had caught this earlier but BDK's strong sales reminds me how silly the HD sell-off has been. The $35s are $1.10.

PNRA is making a massive investment into pizza to diversify their business and are being crucified for it. I'm going to see if they hold $53 and possibly take some $55s but they may go all the way back to $49 before turning.

TIVO is rolling out a system to give Nielson type ratings to broadcasters and advertisers. I like this idea a lot and the Feb '07 $7.50s are as far out as I can go for .60 but that's a huge premium so buying the stock for $6.41 makes sense too. Watch the 200 dma at $6.17.