Options Trader: Tuesday Wrapup

by: Philip Davis

Wow that went way better than I thought! I'm sorry I missed today; it was exactly the kind of indecisive trading I predicted—for about an hour and a half—then we went right back to rally mode!

We got great Nasdaq leadership with strong SOX movement, just what the doctor ordered, along with a great move by the S&P and the NYSE on increasing volumes.

The transports are still getting heavy resistance, which bothers me more than a bit, but I feel like I'm nitpicking...

Oil didn't exactly fall off the table just yet, but those 2:30 rallies are getting weaker and weaker as volume sell-offs dominate the NYMEX (gee, I hope it wasn't something I said).

Maybe it was something these guys said: I just found this site that claims oil does not come from dinosaurs but is a renewable byproduct of our planet's geocycles. This is a tremendously appealing thought but let's not all go out and buy Hummers just yet!

I don't know if I said this in comments or in the column, but we do need to evaluate the Valero Rule at this point as there is now a disconnect (as pointed out by zman) between gas prices and oil prices as the summer driving season comes to an end. Since Valero Energy Corp. (NYSE:VLO) makes money turning gas into oil, their margins suffer first. We will have to consider this. But I think, on the whole, this just makes VLO an earlier version of the canary in a coal mine. As I have been saying for close to two years now: If you don't buy it they will charge you less! The first victim of demand destruction will be the refiners. But when they cut back and the tankers are full, who suffers next?

Gold shot up to $647 as the global economy looks too strong to resist. Unfortunately that moved copper up as well, but just a bit. Nickel fell 9% for no particular reason. If that was all the consolidation we get out of oil, we may be heading back to $750!

On the whole it was a great day as we continued last week's pattern of an upward consolidation, but with much better volume.

Today's Picks:
• I went away for the day and my Chesapeake Energy Corp. (NYSE:CHK) and EnCana Corp. (NYSE:ECA) puts suffered for it! I still believe, but my faith is getting shaky...

• At this point, my safety net of Dawson Geophysical Co. (NASDAQ:DWSN) has bailed both these positions out with another 6% gain on the day, as I can only think people confused them with Devon. Dawson finished at $29.23 (up $3.23 - 12.5%).

• Statoil ASA (NYSE:STO) owns as much of that new discovery as Devon Energy Corp. (NYSE:DVN)—why is STO "only" up 2.5% on the same news that shot Devon up 12.5%? If market cap is the answer, they should still be up at least 5% to keep it relative. The $30s are just .35 and might be a fun play if the partners head higher.

• Caterpillar Inc. (NYSE:CAT) contributed to global inflation concerns by announcing they will be raising prices (about time!), rocketing our Oct $70s to $2.75 (up 95%).

• Bear Stearns Companies Inc. (NYSE:BSC) had a nice first day, gaining 1.5% and running the Oct $140s up to $1.85 (up 40%) while the $120 puts lost 20% to $1.35.

• That Barron's article decimated PetMed Express Inc. (NASDAQ:PETS), and the stock dropped all the way back to $10.55, I'm waiting, but I like it down here.

• SmartVideo Technologies Inc. (SMVD) jumped another 20% today—still no real news... Someone asked if I had a target on this, and the answer is I have no idea. These little stocks are just a roulette wheel and the best thing to do is take maybe 10% off the table whenever it gains 10% or more until you have a free ride, then set a 20% stop.

• Yahoo! Inc. (NASDAQ:YHOO) opened below our stop so no entry there but I still like the Oct $30s if Google Inc. (NASDAQ:GOOG) stays up.

• Looks like we picked the right day to enter Amgen Inc. (NASDAQ:AMGN), with the Oct $70s finishing at $1.95 (up 30%).

• We took out the Phelps Dodge Corp. (PD) Oct $82.50 puts for $1 at the open ($2.20 profit); this reduced the basis on the Jan $82.50 puts to $4.20, where we are currently even, but I'm holding. In fact, I am very tempted to buy some $82.50 puts for myself but let's just see where copper goes from here.

• I guess we need to hold on to the BHP Billiton Limited (NYSE:BHP) Oct $45s, now $1.15 (up 75%), until we resolve direction on PD...

• We said a sad goodbye to our Intel Corp.'s (NASDAQ:INTC) today. The $20s finished at .35 (up 75%), the Jan $17.50s let us out at $3.20 (up 100%), the Jan $22.50s hit .50 (up 80%) and the Oct $20s finished at .85 (up 90%).

• iShares Russell 2000 Index ETF (NYSEARCA:IWM) Oct $72s shot up to $2.45 (up 75%), and half should be taken off as indexes just shouldn't gain that much in 3 days!

• There was no way to short Chevron Corp. (NYSE:CVX) today looking at DVN's performance!

• Overseas Shipholding Group Inc. (NYSE:OSG), on the other hand, went down anyway but no real motion on the puts just yet.

• Costco Wholesale Corp. (NASDAQ:COST) had a great day and the Oct $50s ran up to $1.10 (up 40%).

• Freeport-McMoRan Copper & Gold Inc.(NYSE:FCX) $55s are just too high at $6.90 (up 235%), so I'm rolling these into the Oct $70s for .75 to take my principle plus a 190% profit off the table.

• Las Vegas Sands Corp. (NYSE:LVS) $70 puts hit $3.10 already (up 55%).

• Marvell Technology Group (NASDAQ:MRVL) kicked it into gear already on a big upgrade. The Jan $21.25s are slow movers to $1.45 (up 30%).

• Harris & Harris Group Inc. (NASDAQ:TINY) notched another 4% gain (yawn). I'm raising the stop on the March $10s to $2.75 (up 140%).