Options Trader: Friday Morning Ideas

by: Philip Davis

Wow, Friday already? See what happens when you miss a day...

I'm glad I missed yesterday, what a disappointment!

The Dow held 11,100 but it's a BS indicator, the S&P couldn't break 1,270 which I hope everybody realized was a strong don't buy/sell signal. Now we will see if it can hold the still falling 50 dma of 1,257. The NYSE remains strongish above 8,100 but the Nasdaq is just sad even with a very mild SOX recovery.

We need to watch the S&P again today but I can't see wanting to hold anything into the weekend. We did so well on the first 3 day's of the week there is really no reason to push our luck until we get much clearer signals than we are seeing now.

Asian trading was mixed with the Nikkei pulling up the rest with a 1% gain on very good Sony and Cannon Earnings which you would think bodes well for retailers but no reaction here. Europe is trending down this morning as $75 oil rears its ugly head again.

Further dollar weakness will keep oil above $72 for a little while but I think we are due for a little pullback. I was pleasantly surprised to see my XOM $62.50 puts are still .30, I thought I was toasted when they announced their numbers!

Cramer is right about VLO, they should be much higher but I'm more inclined to question why they aren't than jump in and buy. If VLO, XOM, COP and CVX can't all take $70 on these numbers then the only logical conclusion you can draw is that there is something very wrong with the price of oil! We have started the first month of Q3 with oil $7 higher than the average of Q2, that's another $10M a day for XOM alone! Demand is strong and so far there have been no disruptions... What gives?

Watch gold very closely as it has been having a lot of trouble at $640 despite continued dollar weakness. I think the novelty of the war is wearing off and without any additional pressure some of the fear premium is wearing down but that can all change over the weekend.

I'm moving to pretty much all cash as I think the initial excitement over the GDP numbers causing the Fed to pause will give way to worry that the economy is collapsing. No matter what they tell you, inflation is not easing if oil is over $70 and copper is over $300.

Speaking of Copper, N (and by proxy PD) took my advice and dropped their bid for Falconbridge, paying a $150M breakup fee rather than upping the offer. That still leaves Xstrata in the running with a $17Bn cash offer for FAL but I'm not sure they'll actually do more than increase their current holdings.

On the whole this should be good for PD who have been rightfully hammered for overextending on this silly deal. Perhaps this will lower the price for Inco or take that deal off the table entirely so the $80s at $2.25 seem fairly attractive. I don't know why Inco investors are getting all excitied in pre-market, this may kill their deal as well!


In general the atmosphere has turned back to unforgiving and I'm not too keen on buying things today.

Let's see if XING holds $10 but I really like this for a very long-term play. You can own the stock for $10.25 and sell the Jan $12.50s for $1.60 for a very nice buy and hold.

I will be picking up some YRCW ahead of the conference call as they had great earnings and raised outlook but went down in the overnights. I feel strongly enough about this one to grab the $40s but I will enter slowly (1/10 per half hour unless it really bottoms) until I hear what they have to say.

Boy I thought we scored with the 85% gain on our SNE calls last week but look at it now.

WMT is pulling out of Germany and that's going to hurt, it will be interesting to see if they can hold $42 which has been good resistance for them the past year or if they will plunge below that to rollback pricing all the way to 1998 (the last time they were below $40). I think cutting and running is a good decision for Wal-Mart and I will probably take a leap once they bottom. This sell-off will push them to the very low end of their group in p/e.

CVX is doing what I hoped XOM would do yesterday - ah well....