Options Trader: Wednesday Wrapup

by: Philip Davis

Bad Iran, bad, bad! There, I have officially done more to reprimand Iran than the UN will tomorrow. Still, as expected, oil traders made that the story of the day (apparently the 45 day-old deadline was quite the surprise on the NYMEX floor at around 11:30) and got oil back above $70 at the close. They forgot to bring natural gas with them, possibly because it is portfolio suicide ahead of the inventory, and it dropped back to $6.50 after spending 15 minutes above $7 yesterday.

We are firing on all cylinders with the indices moving closer to my test-marks in a nice orderly fashion. The SOX punched through 450 with a big finish but the Transports provided the day's biggest disappointment and that does worry me — more on that tomorrow.

There is no more room to grow without testing our tops so tomorrow will be a very interesting day.

Gold was all over the Iranian situation today, jumping $7 against a fairly flat dollar. The invisible hand is all over this one with money coming out of commodities, including homes, and flooding the market with dollars, causing rates to drop and commodities to rise — forming a nice, soft pillow of cash for the economy to land on.

You don't have to believe me; Uncle Ben took my weekend Blog and turned it into today's speech saying:

"Rising disposable incomes should enable household spending to expand at a moderate pace and provide continued support for the overall economic expansion." Bernanke said that should be the case even though smaller gains in home equity would likely lead U.S. households to save more out of their current income. "The rapid pace of house-price appreciation in recent years likely contributed to the decline in the saving rate," he said. "Similarly, the cooling of the housing market and associated reduction in capital gains on housing will probably provide some upward impetus to the saving rate."

If he next explains that money that flowed into commodities is now providing additional liquidity, I will expect a check because this is getting ridiculous! He has now used 4 consecutive articles of mine in his last 4 statements!

I hope Ben's been taking our picks too because he could use a little extra cash to augment that chinchy Fed Chairman salary...

Today's Picks:

  • Our master plan to sell ExxonMobil (NYSE:XOM) $67.50 puts yesterday at .55 and rebuy at the open saved us a dime, and the .45 entry went all the way to .90 (up 100%) before finishing the day back at .75. The $70 puts peaked out at $2.45 (up 225%), and that was just too much for me to leave on the table as it bobbed up and down a dime from there around 1:15. For more about today's oil and oil stock action, see here.
  • Chesapeake (NYSE:CHK) Oct $30 puts were a disappointment, staying at .80 all day. The $32.50 puts ran to $1.50 (up 100%), making the Octobers a freebie, while the $30s were not worth selling, still at .25.
  • EnCana (NYSE:ECA) Oct $50 puts, on the other hand, opened at $1.20 and held $1.40, down .20 from the high but looking good. Our original ECA play, the $55 puts, let us out for $4 (up 90%) so the longer puts are now much more than free!
  • BJ Services (BJS) was well behaved with the $32.50 puts finishing at $1.30 (up 40%), down .20 from its high.
  • McDermott (NYSE:MDR) Oct $45 puts went nowhere all day.
  • Tidewater (NYSE:TDW) $50 puts were a perfect call with a great $1.60 open and a $3 finish!
  • TDW 1-day 5m Chart

  • Adeza Biomedical (ADZA) opened too high to play, up 6% to $16.89.
  • Costco (NASDAQ:COST) Oct $50s came in at .75 and finished at .80, the $50s were just too far out of the money to play on that 5% drop!
  • AXA (AXA) had another good day and the $35s are now $2.30 (up 60%).
  • Harris & Harris (NASDAQ:TINY) is in the too-much-too-fast category, with a 13% gain today to $11.25 (up 20%). The March $10s are well in the money at $2.40 (up 120%). If you sold the Oct $10s you are called away with a nice profit, but they would have been a good trade too at $1.65 (up 300%).
  • Continental Airlines (NYSE:CAL) keeps rollin' along with the $22.50s at $3.30 (up 100%).
  • Southwest Airlines (NYSE:LUV) is dragging behind with the $17.50s still .40 (up 60%).
  • Seagate Technology (NASDAQ:STX) Mar $22.50s are back at $2.50 (up 66%) - I can't believe we got that again!
  • Schlumberger Ltd. (NYSE:SLB) $62.50 puts are in the money at $2 (up 85%).
  • Tiffany & Co. (NYSE:TIF) earnings tomorrow, but I'm already out.

Have a good one,