Options Trader: Thursday Wrapup

by: Philip Davis

Mark Hurd is earning every dime today! Wow is he good! Diffusing a horrible situation about as well as possible. Too bad we got stopped out of those $35 calls at $2.40 (although they were up 140% at the time).

Still cash, cash, cash. Today was nowhere near as smooth with our oil plays, as crude took off like a rocket to $64, where it did an about face at noon, failed the afternoon pump and sold off into the NYMEX close down a quarter at $62.76. This was well below the 5% retracement line we were watching at $63.28.

We had our party hats all day but, despite a lot of teasing, no all-time high on the Dow. It was a lot like when you have a surprise party and, every time the door opens -- people go "Shhh, shhh, shhh" and then it's just another guest and everyone goes -- "Awww." After that happens about 10 times everyone gets tired of it and, when the guest of honor finally arrives, everyone is already partying and all he gets is a half-hearted "surprise" and feels horribly ignored (or is that just my friends?).

So Dow 11,718! Pretty good no matter how silly it really is. I'm in no mood to throw a damper on it after looking at Research In Motion Ltd.'s (RIMM) blowout numbers (although they are delaying the official report as they are "checking" options issues), which indicates to me that that whole sector is rock solid -- so game on for Palm Inc. (PALM) tomorrow too!

The Dow finished just 6 points below the hoped-for number, just a tick or two on a regular day, and it was not for lack of trying as many components were pumped for all they were worth into the bell.

As I pointed out in comments, strange moves near the close included: Caterpillar Inc. (NYSE:CAT) + .15, General Electric Co. (NYSE:GE) +13 and down .15 at 4:01, Honeywell International Inc. (NYSE:HON) +.17, Johnson & Johnson (NYSE:JNJ) + .10, JPMorgan & Chase Co. (NYSE:JPM) + .13 and down .15 at 4:01, McDonald's Corp. (NYSE:MCD) + .30, Pfizer Inc. (NYSE:PFE) + .15 and, best of all ExxonMobil Corp. (NYSE:XOM), who caught a bid at $67.46 - .41 above the last trade at 4:00 and it registered at the close! That's a $2.4B jump in value after the bell that's included in that final Dow number.

Chart of triple top Dow???

Look at the one-minute chart and it's as clear as a bell. Will I be the only person in the United States to notice this? Probably... Just remember this when I talk about the things that THEY do -- because they're doing it to you!

So enough Dow silliness, the other indices were flat, giving me some concern but let's call it a bullish consolidation. The S&P made a very brief visit to 1,340 but also backed off at the close while the NYSE was twice rejected at 8,500.

In the Nasdaq, more important than the nice flag it's forming under 2,270 was the great bounce it took off 2,250, along with the SOX, which bounced back from a sharp dip to finish over the 460 line.

Only the transports pooped the party, once again rejected at 2,500 to finish down .5% on the day.

Oil started out determined to make our lives miserable, seizing on a gas build of "only" 76Bcf as Chesapeake Energy Corp. (NYSE:CHK) (and who knows how many others) formed a virtual cartel by cutting production 6%.

"We do not take a static approach to this business," Tom Price Jr., Chesapeake's senior vice president of corporate development. "When gas prices are higher than we think is appropriate given supply and demand fundamentals, we hedge," he said. "When prices are below what we think is appropriate, we will shut in wells that are not otherwise protected. It's our business to maximize shareholder wealth creation."

Wow! Put this guy in charge of OPEC! He'll have oil at $100 in no time!

So let me get this straight. We give them the right to drill on our land, to use our natural resources, and he sees it as his job to squeeze for every dime we've got. Let's remember that next time the lease comes up for renewal! CHK alone will cut off 700Mcf a week (1% of the build) in order to keep prices at 250% of the prices we paid prior to the last change of administrations (not being political -- just referencing a date in history...).

Here's the problem with commodity players of all stripes: Commodities are like concert tickets -- every group is hot for a while and, for a period of time, you can get top dollar for your tickets. But, inevitably, that time passes and these guys still want us to pay $200 a ticket to see The Knack... It ain't gonna happen! Analysts are like concert promoters stuck with a one-hit wonder, trying to tell you how hot the new album is about a week before it ends up in the 99-cent bin in the back of the record store.

"You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time." - Abe Lincoln (really)

Speaking of fooling some of the people over and over again, Gold is up another 50 cents today, holding $602 against a flat dollar. Taking a page from the BP PLC (NYSE:BP) oil cartel, Newmont Mining Corp. (NYSE:NEM) lowered it's production figures by close to 10%.

Here's an interesting article indicating it may not another year of 70% profit gains for the brokers in '07.

All in all it was a frustrating day on the markets -- much like waiting behind the couch for the guest of honor while the beer gets warm!

Today's Picks:
Heading into tomorrow I want to be perfectly clear that my goal is to cash out almost everything so I can enjoy my weekend. If Monday is up 200 points or down 200 points or flat -- I don't care as we can start playing again on Tuesday!

  • Neither the Google Inc. (NASDAQ:GOOG) Nov (I know, I left out that little detail) $350 puts or the $460s got under $3, and we are not going to chase them!
  • Yahoo! Inc. (NASDAQ:YHOO) was my star of the day with a 2.5% gain but the Nov $25s strangely didn't move at $1.40, but I'm happy with these! The $27.50s showed signs of life at .35, (down 40%) while the Jan $27.50s are $1.50 (up 20%), and the Jan '08 $25s moved up to $5.10 (down 30%). This is a case where the length of our calls saved us from being devastated. Plus we sold calls that we redeemed against both Januarys. So we were expecting a dip, but not a collapse!
  • General Motors Corp. (NYSE:GM) almost went according to plan. It did go up, all the way to $33.60 where we picked up the $32.50 puts for .90, but we held them just a bit to long and stopped out at $1.10 (up 22%) -- not that bad for 3 hours!
  • Nokia Corp. (NYSE:NOK) $20s barely responded to a morning spike and we took the .70 off the table as the stock fell below $20, giving us at 31% average gain on our 3 entries.
  • The Valero Rule (wisely) kept me out of everything except the ExxonMobil Corp. (XOM) $65 puts I just had to have for .65. Not following the rule cost me a nickel so far!
  • We took the Schlumberger Ltd. (NYSE:SLB) $57.50 puts when they got ridiculously cheap at .65. They finished the day at $1 (up 55%) and we held them. The Oct $50 puts came back to .50 (down 17%).
  • I doubled down on Goldman Sachs Group Inc. (NYSE:GS) with the $165 puts at $2.25 and they promptly beat me out of another dime! We also took the $155 puts for .65 as they seemed too cheap to resist but with both puts having a soft stop over $371.
  • AAR Corp. (NYSE:AIR) stopped us out at $2.40 (up 92%).
  • Boston Properties Inc. (NYSE:BXP) suddenly turned positive with a 1.4% drop. The Jan $95s are back in the black at $2.10 (up 14%). We came just 10 cents away from triggering our $1.20 stop on Monday!
  • Caterpillar Inc. (CAT) $70s amazingly came back to .65 (up 30%), too bad we stopped out of the others...
  • Our CKE Restaurants Inc. (CKR) Nov $17.50s gave up at .70 (up 8%) as we didn't want to lose the profits on this roll.
  • Capital One Financial Corp. (NYSE:COF) went flying up 2.25% and the $80s at $2.35 (up 262%) should have a stop of no lower than $2, as we already have the roll of the Dec $80s, now $4.20 (up 105%).
  • McDonald's Corp. (MCD) Oct $40s took a morning dive and stopped us out at .90 (up 13%).

Read all of Phil Davis' articles on Seeking Alpha.