Options Trader: Weekly Wrapup

by: Philip Davis

Nothing wrong with that week was there?

We have a ton of open calls (although as I said on Thursday, I have sold most of my shorter plays) since everything just kept going up!

Out of 60 picks over the last 2 weeks we have had 3 losers (and I'm doubling down on those oil plays) and 4 neutrals - not a bad percentage. The average gain is close to 100% but that includes the newer picks... Really can't complain can we?

Last Friday left us about 1% down but we called a bottom over the weekend and yesterday we laughed at the attempted pullback and called for Dow 12,000.

Here we are now, already at just under 11,400. I'm not ready to declare victory yet but we soon may have good reason to celebrate if we can just get the follow through on Monday.

Today's action was better than I hoped, we got both our consolidation AND a breakout at the close.

The Dow closed at the day's high at 11,381, a level only seen for 10 days this decade (they were in May) when the Dow peaked at 11,670 before plunging to oblivion on the shock of $75 oil. I have to think that had the oil pumpers not been so greedy, we could have gently eased the price up with the markets and we would all be happily paying $80 a barrel against a bull rally that would put the Asian markets to shame.

The S&P broke 1,300 at the close after brushing against it all afternoon and the NYSE finished just short of 8,400. I said we had a rally when the Nasdaq hits 2,100 and today it had a nice test of 2,140 at the open and went straight up from there to finish 25 points better at 2,163.

For the week, the Nasdaq was up 5.2% vs. 2.5% for the Dow and S&P. For the year, the Nasdaq is still -2% vs 6% Dow gains and 4.3% on the S&P. It's all up to Nasdaq 2,200 next week!

Even Dell had a nice recovery today. If they can be forgiven, can MRVL be far behind? TOL and all the builders came back from an early sell-off but it was, unfortunately, oil that provided the gas for the markets at the end of the day. The pending Jihad weighs heavily on the markets and something I missed - oil ran into the 5% rule for the week at $70 - of course it bounced back a point!

Aside from kicking myself for not waiting until the end of day to buy my Sept oil puts, I am very mad that I didn't see this one comming earlier in the week. The 5% rule is the same for a week as it is for a day!

Gold exhibited similar behavior and followed oil up for the afternoon. Don't blame the dollar because it was up all day so it's like I said this morning - don't short fear commodities when the Imam is comming to town.

Speaking of commodities, I found another 2 Trillion barrels of oil if anybody needs it. Turns out it's shale in Colorado and Exxon actually started mining it back in the 70s but shut the operation down when oil went below $20 a barrel. With modern process it is estimated that we can recover more oil out of this area at $30 a barrel than all the oil that has been used by humankind to date.

Is it possible that there are very smart people in our government whose master plan is to import all the oil we can and use up all the foreign oil before we tap our own massive reserves? No, but it may work out that way! It is very possible that the oilman in chief seeks to provoke a serious energy crisis (war with Iran) in order to get those damn enviromentalists to roll over so Haliburton can start stip mining several Western states (Wyoming has tremendous shale reserves but they are on protected land - do we know any Vice-Presidents from Wyoming?).

Speaking of how dumb our government is, Russia announced a $56Bn budget surplus this year - perhaps they can come over here and teach us something but I don't think the boys will listen, a lot of those revenues come from taxing oil companies rather than subsidizing their exploration. Perspective: Russia's entire GNP is just $400Bn so this would be like our $12T economy running a $1.5T surplus!

Ray Unger makes a good point that there are officially just too many energy funds with too much money after 2 years of non-stop growth and this bubble is going to pop big-time as another $15Bn of energy specific funds have come on-line in the past year. The ethanol mini-craze is just proof that they are running out of things to put their money into...

The EIA is catching up with me, now saying that we will hit a record 3.44Tcf of natural gas in storage (22% above norm) by November 1st. This is out of 3.7Tcf of potential storage but that would mean every tank in America was filled to the brim, not a realistic number. As you know, when you start running out of storage all the delivery trucks start bumping into each other until at some point you just have to start dumping the stuff to get people to take it off your hands.

So we do not have a natural gas shortage, the push behind LNG comes from the gas companies who want the government to spend hundreds of billions of dollars to come up with ways to compress and store another 3 or 4 Trillion cubic feet so they don't have to cut back production (until we fill that up, then they will probably find a way to turn it into a solid or something... oh wait... we already do that with oil, it's called plastic!).


OK, enough of that nonsense, let's see how we did this week:

We took a nice spread on the ABX Septembers and made .40 on the call which left us with a basis of just .30 on the Sept $30 put which is now .45 (up 50%) but was more than a double this morning.

ACI is a great hedge on the oil puts with the Oct $40s at $1.65 (up 15%).

AMAT Sept $15s dropped back to $1.10 (up 22%).

AMD Jan $27.50s pulled back a bit to $2 (up 60%).

We called the dead bottom on ATI on Monday but I forgot to pick an option - oops!

BA was wisely taken off the table on Wednesday!

I hope we don't regret our new BA position as the Sept $80s came in at just .90.

BJS is the poster child for taking a 50% profit off the table with a full retraction, dropping the Sept $35 puts to .90 (down 15%) where I like them again.

BTU was a great bottom call and the Sept $52.50s are back at .95 (up 25%).

We hit the builders on the nose with my industry call on Wednesday (too bad we crashed and lost the specifics that morning):

CAL Sept $22.50s finished the week well in the money at $2.75 (up 60%).

CAT hit our target retest of $68 and the Sept $70s came in at $1.25. Get out if we go below $67.50! Lesson: We did not chase this on Thursday morning and were rewarded for our patience the next day - this is why we follow the rules!

CHK $32.50 puts finished the week at $1.35 (up 230%) but you should have stopped out .30 ago!

CPKI was a great repick with the Sept $25s way in the money at $3.50 (up 75%).

CSCO $17.50s finished at $3.40 (up 590%).

CVX turned on us and the Sept $65 puts dropped to .70 (down 20%) where I rebought more this morning! They were a clean double on Wednesday and Thursday.

I should have gone with my instincts on DE as Tues AM was a great buying opportunity!

I have a lot of faith in my DD Oct $42.50s, still at .60.

DELL $22.50 puts opened at $2 (up 900%) and finished at .40! ALWAYS SELL INTO THE INITIAL OVERREACTION!!!

Now we can see if I was right about the DIS Sept $30s for .70 (up .10) being artificially held down into expiration.

DT didn't go anywhere but others are catching on to the play and the Jan $15s are .90 already (up 50%).

EBAY Oct $25s ended at $3.40 (up 120%) but should have been taken off the table on yesterday's call.

ECA is on my radar with the $50 puts down to .75 (down 25%). The Sept $55 puts finished at $2.85 (up 10%).

GE Sept $32.50s ran into the money at $1.75 (up 165%). Our fun bet on the Sept $35s is already paying off at .25 (up 150%) and make a nice roll at this point (see VTS for why you need to listen to me when I say this!).

GM is very frustrating as we gave up nice gains today on the Sept $30 puts, which are down to $1.25 (down 25%) but we did say the premium was outrageous.

HD Sept $35s moved up to .80 (up 60%).

HET Sept $60s lost a bit today but finished the week at $3.50 (up 60%) and the Nov $65s surprisingly did better at $3.20 (up 110%).

HPQ had a huge pullback but the Sept $35s are still $1.45 (up 125%) but we bought the Jan $37.50s, now $2.20 (up 75%) specifically so we had a roll to take the HPs off the table on Thursdays open when it was up 250%!

HOV did not do that much but the Sept $30s went back to .60 (up .05).

INTC is finally getting into gear with the Jan $17.50s at $2.05 (up 35%). The Sept $17.50s pulled back to $1.20 (up 140%).

OK so MED was a disaster. We sold the Sept $17.50 for $2.40 and bought it back for a dime so our cost basis is $15.75 and we are down $3.25 (down 20%). We can stop out or make it up by selling the Mar $12.50s for $3.20 but I'm braver than that and will sell the Dec $15s for $1.50.

MGM March $40s dropped back down to $3.50 (up 55%).

The best way to buy OLED is to take the amount you want to spend, divide it by 24 and buy that much each month. It may go to 2, it may go to 12 but one day it will go crazy!

Monday's PD spread is working well with the Jan $82.50 puts down .20 to $5.60 while the Sept $80 puts we sold down to .90 (50% profit).

I was a day early with my PRU call on Wednesday!

RDS.A Sept $70 puts pulled a huge reverse off a double today to finish at .85 (down 30%) and I want them again!

We got more of a sell-off than we hoped for with SHLD but who are we to argue with crazy sellers? The Sept $150s came in at $2.30 and we picked up the pre-roll $155s for $1.10, a total that is just .70 more than we were willing to pay for just the $160s pre-earnings (good thing we waited!).

SNE snapped back on us today and the Sept $45 puts dropped 30% to .95.

After a good start the SPLS Dec $25s at back at $1.20 (up a nickel).

STX Mar $22.50s are almost in the money at $2.35 (up 60%).

SU made a big comeback and the Sept $75 puts dropped back to $1.35 (up 25%) off a nice double.

SUN gave back a lot of our gains and the Sept $75 puts finished up a dime at $2.05 but that was entered with a stop at $76 so there is no excuse for not having taken $2.55 on Thursday (up 35%). The Sept $70 puts, now .75 (up 40%) were chosen as a pre-roll for exactly that reason!

TGT is way in the money with the Sept $47.50s at $2.90 (up 250%).

TIF Jan $35s finished at $1.90 (up 90%) but were much higher this morning.

TIVO was a nice reverse call in todays comments as the calls ran away from us so far we swithed to the $7.50 puts for a dime. They finished the day at .50 but we sold at .60 (up 500%) because we are not greedy!

TM Sept $115s droppped back to just $1.40 (up 90%).

TOL Sept $27.50s got back to .80 (up 33%).

TSO was a great Wednesday intraday call and even if you were greedy and didn't get out on Thursday the $70 puts still finished at $1.50 (up 200%). Like I said at $1.90 "holding it on a Friday is just pushing your luck."

TXN Jan '09 $30s are $9.50 (up 30%) and the correct move is to take the all but 10% of the profit off the table and play the Oct $35s for $1 or you can hold on and sell the same as an income producer.

UNH has been slow but steady with the Sept $50s at $1.35 (up 160%).

VOD had a quiet first day with the Jan $22.50s settling at .90 (up a dime).

VTS was a nice spread as the Sept $60 puts we sold fell to $6.10 (up 25%) and the Sept $55 puts we sold are up .20 at $2.90. This one was called off the table on Tuesday when I said "If you took both bets right off the bat the net is $1.30 on the $1.70 investment and should be cashed in (80% in one day, come on - take the money!)." I love to say I told you so, so - I told you so! Greed kills!!!

XLNX Sept $20s more than made up for the slow start at $3.30 (up 175%).

At some point between $2 (up 233%) and .80 (up 33%) you should have taken the profits on the XOM Sept $67.50 puts!