Options Trader: Thursday Morning Ideas

by: Philip Davis

Despite my article from last night, I remain cautious.

Not to be repetitive (as I say this every time we trend up) but, if it's a real rally, we have all the time in the world to jump in. This is a very, very important thing to understand. Did you miss out not buying the first VCR or the first IPod? If things are worth buying they get better, faster and cheaper over time.

Stocks are not very different. A good stock is a good stock for a long time. Of course we hope to catch the momentum plays (heck, that's pretty much all I do!) but when we missed Google from $80 to $175 (60 days) we could have bought it for $180 six months later as it went to $300 over the next 45 days. Having missed that we could have caught it any time in the next 5 months before another $150 leg up. You get the idea.

The same could have been said for Apple, Sears, BTU - any really good stock (or market) rally is something you may miss a big leg of but they unfold over weeks and months, not days. Don't let the sales guy tell you to pay a premium or you will "miss a big opportunity," if the product is real, someone will still be selling it tomorrow - probably for less of a premium than you pay in today's excitement.

My concern today is the same as it was yesterday afternoon when I called for lightening up in comments. I slept rather well most of taking our 100% profit trades off the table even though some (like BA) continued to go up. You really don't need a grandparent to tell you that 100% profit in cash is better than 120% on paper do you?

As I am not the only person in the world who feels that way, my concern is that there will be some profit taking - which will give true believers another chance to get in. I am also very concerned that the oil sector will snap and drag the markets down, at least for a day or so.

Profit taking is likely to hit the early movers like MRK and JNJ into the weekend and I will be watching those closely to see what kind of support they really have.

As I said below, I am very focused on the Russel 713 level today as well as the Nasdaq 2,150. If the S&P can't hold 1,290 I will not be buying anything new this week. Of course the Dow needs to hold 11,300 because there is no excuse for a sell-off in the industrials with declining oil prices.

Speaking of oil... ROFL again!!! You know I love this, especially on the very week I decided to call out the market. We hit the top on the button at $77 last week and today's gas inventories may put a real nail in the coffin of the oil bulls.

Gold continues to be dollar driven but I think no one will go into the weekend short on the dollar so expect gold to dip today or tomorrow as the terror factor is fully priced in. If it weren't for the continued BHP copper strike (which conveniently serves the same purpose as the BP pipeline outage in keeping a commodity price up long after it has peaked) then all metals would be sliding down led by copper.

Be very careful today - chasing things into the weekend makes no sense. I promise to find something worth trading on Monday!


If we don't get some Nasdaq leadership today on the back of HPQs earnings then sell, sell, sell!

The index could still be spooked as the option scandal rears its ugly head again.

After running up 20% in 2 days MRVL just told 30M shares worth of new suckers that they are not going to be able to have a real earnings report as they have significant adjustments to make on options issues.

Now we've know this for a month yet it will still come as a surprise to everyone who bought the stock this week. I think there should be a warning attached to symbols that are "reviewing" performance because there is no way a casual investor would know but I really blame the financial press who feel free to post charts, graphs and income statements of tainted companies without so much as an asterisk.


Really, Really, Really do not take new positions if the markets open down today, these are all trades on the assumption we hold levels today.

This is a complicated story but the satellite providers have dropped out of the bidding for wideband spectrums which should be a big boost for VZ, who we already made much too much money on to play again. I now like their weaker competitiors DT, whose Jan $15s are just .60 and VOD (I know, we did them but they are down again) with Jan $22.50s at .80. With VOD, you can sell the Oct $22.50 for .50 for a nice safeish trade!

I wasn't going to play this one but I will take the Dell $22.50 puts for .50 as HP had a 14% increase in shipments. If Dell had a decrease in shipments at these prices this quarter could be a disaster for them! The bar is set very low for Dell, close to half of last Q2 so this is a very risky bet!!! By the way, this HPQ Financial Statement is one of the best presented I've ever seen, other companies should take notes!

No matter what Dell's earnings are they need to use more AMD chips to cut costs. Only Apple has the pricing power to carry Intel chips with impunity! If Dell announces poor earnings on strong volume then AMD will really break out and the Jan $27.5os for $1.25 won't seem so crazy. I would pick something closer and more in the money but they are on a pre-market roll and those have already gotten away from us.

I have an itchy trigger finger on our Intels as I am concerned that the above 2 items spell at least a little long-range trouble for them.

BTU is zooming up again because a Chinese coal producer is announcing plans to produce 200,000 barrels a day of oil from their coal. Tha would represent a nice little $100M a day bonus in earnings as the coal is just sitting there from Peabody's perspective (we have about 500 years worth). Of course the Chinese also announced a fusion reactor last year yet I still pay PSE&G for electricity so I don't want to get too excited about this and I'm hoping for some kind of pullback but I have my eye on the Sept $52.50s at $1.15.

This is what I get for being away on Tuesday, this Monday article made for a very obvious play yesterday but I missed it!

ACI is a little behind BTU and the Oct $40s are $1.70 and give us the chance for a hurricane boost as well.

I am not chasing either of these and am hoping for a pullback with oil to buy them cheaper!

I am totally blanking on who makes mining equipment so please send me some names that we can check out as well.

CAT is one that comes to mind and I have no idea why they sold off last week anyway. I'm hoping they retest the 200 dma at $68 and hopefully pick up the Sept $70s at about $1.50.

HD is still just sitting there with the Sept $35s at .70. Another buck will take you out to October.

SHLD had a profit beat on lower revenues but what do you expect with stores closing and remodeling going on? The fact that they are doing this well on the bottom line a testament to the greatness of Eddie Lampert. Profit was expected to be $1.67 and came in at $1.88 all vs .98 last year when the stock was at $160! Take advantage of any negative reaction to the slightly lower topline to play this one. I will probably play the current $155s, which should open at around $1.20 and the Sept $160s for $2.50 (apx) but I will hope for a sell-off first!


Oil puts as long as oil stays under $71.50:

Elton John sings "Don't let the Sun Go Down on Me" and I guess he was singing about Sunoco, who refuse to believe the oil rally is over. The Sept $75s puts are $1.90 and I would buy those with the Sept $70 puts for .55 as a pre-roll.

The other sun, SU is also still a little pricey and Sept $75s are in reach at $1.10.

BJS has held up well and the Sept $35 puts are $1.05.

CVX Sept $65 puts are $1.35 and there are 30,000 contracts already written below $60!

HAL and SLB make good plays but I'm not sure they are ready yet...

Don't tell me you still don't have the RDS.A Sept $70s for $1.25 - this was one of those second chances I talked about.

Check Monday morning blog for other plays that are still available.


Here's something that doesn't seem to occur to anyone: Morgages are a commodity too! Money must be lent to someone or the bank dies and they have gotten used to an endless demand for their product. There has been a tremendous slowdown in mortgage transactions that may lead to some pretty drastic (and unwise) reductions by certain lenders.