Options Trader: Friday Morning Ideas

by: Philip Davis

Talk about a day that could go either way...

Like I said last night, the reality is that people are still trying to kill us and I would, on the whole, be much happier making a nice bottom than continuing upwards.

July Retail Sales are out today and at 7am (now) I am leaning towards an upside surprise which will boost the markets at least in the mornings.

Asia took the news of Japan's slowing growth fairly well with mixed results across the Pacific Region. I will take advantage of MTU if it bouncs off the 50 dma at $13.50 again. You can't blame TM, whose sales are up 39% but I bet someone does and the $110 puts for $2.10 make a nice momentum play ONLY IF the whole market heads down and take a profit and run as this is a great stock! At the same time I will be looking for a good entry on the Sept $115s, hopefully for $1.20 or less but on a big downturn I will switch to the $110s.

Europe is very flat, seeming to have no idea what to do without US direction. Nobody seems to be cancelling trips yesterday and my favorite quote of the day is from a woman from Atlanta who was going to France and said "If we blow up at least we're going somewhere we love."

Back to Econ 101 from the Tuesday: Even though we are the actual target, the Europeans need to decide if they fell safer putting their money into say England's $1.5T economy (#4) , Japan's (#2) slowing $4T economy or the US's $12T economy which is growing at "just" 3% (that's the same as the whole economy of Russia, the world's 16th largest economy).

Run away if the Dow breaks below 11,050 or if the S&P can't hold 1,271 or if the NYSE falls below 8,200. I'm going to be watching the SOX which need to conquer 415 and test 420 very closely and could care less what the Nasdaq does unless it breaks 2,110 in which case I will turn bullish.

More dollar strength should give oil a bit of trouble at $75 but the 50 dma on oil is $73.41 so that and $74 should both provide very strong support coming into the weekend.

Gold will also not find many shorts going into the weekend but dollar strength should keep it between $650 and $660 and ranginess tends to cause gold miners to sell off as they are notoriously poor hedgers. AU was good to us this week but if you didn't stop out at $51 with a 50% profit on Wednesday you might want to consider taking it off the table today.

Keep an eye on the 10 year but it should stay under 5% in this environment.

I'm pretty sure I want to be in 75% or more cash at the end of the day regardless, it will let me sleep better over the weekend! This has been a pretty good week for us, no reason to blow it.

Make sure you have a good one....


How could I forget our VIA trade yesterday? On Wednesday night my rationale for staying in the market was: "I held positions because I strongly felt that VIA, AIG and TGT would give us a boost tomorrow."

VIA chart
AIG chart
TGT chart

This is a great example of how fundamentals trump charts almost every time!

Our target calls are up 115%, I didn't play AIG because I was concerned about how much business Hank Greenberg pulled when he left but it turns out not enough to really hurt (and I suppose many were relieved) but VIA was the star of the group with a 10% gain yesterday.

Our November $35s are already $2.65 (up 100%) and should be sold to lock the profits and reduce the basis of the Jan $35s which are at $3.30 (up 40%).


Not making new plays today, would rather get a fresh start on Monday. Like I said, it's been a good week and cash is king in this environment so just a few momentum plays at most:

N has yet another suitor, RIO is offering $15.1Bn in cash, about $86 per share for Inco. PD's offer was for $20 cash and the rest in stock and PD is holding up pre-market as investors think they will walk away from this but I'm going to take the $85 put if it comes down below $1 as a gamble that PD will sweeten their offer to some ridiculous level.

Apple said it expects "significant" changes when it files its delayed quarterly report so my patience may finally pay off and give me another shot at $60. I will wait for a real bottom if the rest of the market is trending down though. The best time to buy will be into a "delisting" rumor which should freak out the casual investors.

Monday BKD reports and I think the bar is way too low on earnings if they hit it, then I will watch SRZ and how they handle $28.50 but I feel good about Jan $30s for $2.20.

Those UNH Sept $50s came in at .50 yesterday but I still like them at .75. HUM is not 40% better than them!

NVDA is reviewing stock options now so watch the fun on that one! The 200 dma should be the first stop at $22.40 and the 50 dma at $21 and bears watching. I will give this one 'till next week but I really want it coming into Q4, especially if Dell can pull things out.

XLNX is one I am going to pick up today if the market holds up. They had a disappointing quarter but made a heck of a one dy recovery on the 26th and look like they are firming up here so the Sept $20s aren't so bad at $1.15 but get out/don't buy below $20. It might be better to wait and see how they handle $20.50 or $21 but I will be out at $22 unless they plow through the inverted 50 dma at $22.25.