Options Trader: Weekly Wrapup

by: Philip Davis

We said it could go either way but it only really went one way today, down.

The Dow took bounced weakly off my run away point of 11,050 at 1:15. For the week we lost 200 points with not a very sexy finish.

The S&P gave us a nice, early get out signal with a poor open and finished down about 1% on the week while the NYSE blew right through 8,200 at the open and never saw it again. Although down just a touch overall - this to me was the week's biggest disappointment.

The Nasdaq's biggest crime was that it actually looked like it was going to do something on Wednesday but, as the saying goes, "fool me 29 times and I am just an idiot for buying tech stocks!"

I may just get my rock bottom test yet! Can the Nasdaq break 2,000 next week? Will people buy Google anyway? How cheaply will I be able to buy Motorola? Tune in next week for "As the Market Turns (down)."

Oil held $74 on a huge pump job that began about 1:45 and ran to the NYMEX close at 2:35, at which time the buyer mysteriously lost interest. The whole sector was going down on news that BP wasn't going to get away with a full shutdown with federal regulators breathing down their necks and the terror story (well timed though it was) wasn't enough to get them off the front page.

With reporters inspecting the pipes up in Alaska, the company officials had to hem and haw to try to explain why 2 totally separate pipelines had to both be shut down simultaneously to do maintenance on 16 out of 1,600 miles of piping.

Since they haven't bothered to do any maintenance or even inspect the pipes since 1992 (I am not making this up) it just didn't seem all that urgent to the sharp East Coast reporters who had trudged up to Alaska to see for themselves.

Other evidence of the oil scam keeps popping up as it turns out our friends the Saudis (the guy George Bush holds hands with) have been cutting back production to keep pressure on prices. This is a must read article with good sub links to help understand the oil process.

There is plenty of hard data available (.pdf) about oil.

But very few people know how to read it and the official data itself is spotty at best. In June the IEA quietly "adjusted" inventory up by 79M barrels for March. Now think about the big deal they make on those weekly reports as to whether we are up or down 1 million barrels - the market flies up and down on those numbers.

A 79M barrel adjustment means that they could have underreported inventory by 1M barrels a week for a full year! More likely though, they have been underreporting gains in inventory since the Fall of roughly 3 Million Barrels EVERY SINGLE WEEK!!!

This adjustment represents roughly 10% of our nation's oil inventory - Ooops! Guess they didn't see that barrel under the couch the first time they looked... It's an honest mistake (choke, choke).

Gold is telling you things are under control. It is what it is at this point, rangebound with the dollar which made a huge comeback on Thursday's news, running right into its 50 dma this afternoon. A strong finish to the dollar means US traders are buying it too but it remains to be seen whether this is confidence in the US economy or lack of confidence in the Yen, which crashed below its 200 dma today, or the Euro, which crashed into its 50 dma on the downside.

Gold closed all the way down at $631, not what you might have expected with people trying to blow up passenger jets, but gold is primarily a hedge against inflation and instability. Catching terrorists is good, not bad for global confidence. Like I said yesterday, people are trying to kill us - that's a fact that wall street has learned to live with. Any time we catch a few of them we are a little safer. The gold market is signaling the commodity run may be petering out and the miners are starting to take it on the chin (as predicted this morning with a very timely call on AU).


It was an interesting week to say the least. The majors ended up down a point or so but only the Nasdaq is negative for the year (down 6.7%). I'm not going to do a very extensive review as there were far too many conditional trades and too many stop outs, don't buys and quick momentum plays to try to review in detail.

I have been considering moving this newsletter to the next level, which will allow me to do all that and post intraday alerts and track trades live etc. but it's a big step and will cost you money so let me know what you think about that.

Today's PD trade in comments was a great example of the kind of stuff I'd like to publish in some kind of alert: At 10:17 I noted PD was going up for all the wrong reasons. Our original $85 put went too far out of the money so I switched to the $90 put which we picked up for $1.85 and ended the day at $2.80 (up 50%). This is not bad for 5 hours work!

The same is true for a trade like VIA where we got out right at the highest price for the day on our Nov $35 puts at $3.40 (up 140%), even though it was heading down at the time.

We also took the VIA Jan $35s off the table at $4 (up 90%) as it was just too much profit to leave on the table in this market.

I also traded TSO to a quick 20% loss which was the right idea but the wrong time but the .30 lost there was made up for by PD's .90 gain so far. This is a great example of how I needed to listen to myself when I said to stay away from oil trading as it has become totally irrational.

So would advice like that be worth paying for? I have a big decision to make soon so let me know.


We started Monday saying "it is good to get back to mostly cash pretty much every day in this market" and boy was that guy right! Take the money and run was the theme of the week as we had plenty of great trades that were erased a day later if you didn't stay in day trade mode.

On Wednesday morning we got the exact action I was talking about when I said: "If we see action like the above chart again - GET OUT, GET OUT, GET OUT!" Boy that was good timing! Although I will report numbers below for the full week, shame on you if you didn't take profits off the table.

I am not a day trader, but I don't turn down profits at the end of the day.

ABX Sept $32.50s stopped out on Wednesday at $1.55 (up 25%) which left us with a very cheap Sept $30 put, now .70 (up 40%).

BA took a real hit on the terror news and the Jan $90s dropped to $1.30 (down 30%), an overreaction for sure.

We took our BP $70 puts off the table on Monday at $1.10 (up 120%) as I said (and often do) that you make the most money on the initial panic. BP is down another dollar for the week yet the in-the-money puts are still $1.10.

There were better times to get out but the CHK $32.50 puts finished at .85 (up 60%).

CPKI was a great earnings call and the Sept $25s had to come off the table at $3.00 (up 100%) but still finished a very volatile week at $2.50 (up 65%). This is too bad because I wanted to rebuy for less!

CSCO held firm but there was no reason to ride it out as we exited on Wednesday's initial excitement, getting $2.35 for the $17.50s (up 365%).

EBAY was a great call but I missed mine on Tuesday morning at Oct $25s for $1.65 and it ended the day at $2.15 (up 30%). I won't miss it again and will take the same calls for $1.50 on Monday if there is any sign of a recovery.

ECA went down but sentiment changed and the Sept $50 puts dropped to .90 (down .10).

GE is looking iffy with the Sept $32.50s held .70 (up .05) and I'm still a believer.

GMCR may have hit bottom just above my $35 target at $36.

HANS looks like it was a good bottom call at $28.25 against selling the Feb $30s for $6.45.

HD Sept $35s dropped to .50 (down 25%).

HET had a rough week but the Sept $60s are still $2.35 (up 10%). The Nov $65s gave us less heartache at $1.80 (up 25%).

HOV and all builder plays had the wrong reaction to the Fed with the Sept $30s crashing to .30 (down 80%).

INTC was all over the place this week and the Jan $17.50s went nowhere at $1.50.

JOBS was the best play I didn't make when I said on Monday: "JOBS announces tonight but my thoughts are, if they can't make money in this market, they never will and the trend has been towards never." Too bad I'm scared to play Chinese companies.

LUV was just lucky timing with the Sept $17.50s running up to $1.30 (up 120%) but the point was to balance out the Boeing trade which it did very well. This was another trade where the initial drop we took at $1.40 on Thursday morning paid more than an additional 4% drop did over the next 2 days.

MGM March $40s are still $2.30.

MVL just kept going up up and away (oops, that's the other guys) and the Sept $17.50s ended at $2.65 (up 110%) but I was too cheap to buy it on Monday's high open (kick, kick).

NCS was yet another misread of Fed news and the $50s dropped to .45 (down 70%) if you refused to sell. Prof must have earned himself another vacation this week!

We started the week bullish on PD and, even after today's sell-off, the Sept $90s finished the week at$ 6.30 (up 65% or up 100% from our recall Tuesday night).

RDS.A $70 puts are oddly low at .65 (down 25%) with the stock at $70.33. There will be a lot of people on the wrong side of the trade if the oil sector heads down. A 1% move on this stock will put you in the money and the stock is trading $4 above its previous strike price so I like this as a gamble next week.

STX held up and the Mar $22.50s gained 10% to $1.60 in a very bad tech market.

SRZ is working on day one with a 1% gain and the Jan $30s closed up 15% at $2.60. Don't forget we are watching BKD closely!

TGT was one of our best calls with the Sept $47.50s still looking strong at $1.95 (up 165%).

TIF Jan $35s still seem cheap to me at $1.

TM was a nice trade today. It gapped down so we missed a big gain on the $110 puts but we got a .75 entry on the Sept $115s which are already back at .95 (up 30%). Now that's a day trade!

TOL Sept $27.50s are looking iffy at .50 (down 15%).

UNH was a good bottom call on Thursday's drop with the Sept $50s already at .80 (up 60%).

XLNX is off to a bad start with the Sept $20s dropping to $1 (down 20%).

Our XOM Sept $67.50 puts dropped another 15% on Friday but our cost basis is .60 (.50 was paid for by the other end of the spread) so we can hold through .75 and still make 25% on the trade but you should have been out at $1.