Options Trader: Monday Wrapup

by: Philip Davis

Wheee, what a day! 19 successful oil and gold plays averaging over 300% gains! Many of these were rolls from profits on earlier trades, one of these days I need to track these things in a chart...

Just a 90-minute sell-off, then back in the black for the rest of the day. This must be very frustrating for bears at this point (other than us commodity bears!).

SOX made a huge power move, up 2%, but pulling back at the close to finish below 450. But I’m going to say it’s consolidating for a run at 480 (the 200 DMA).

The transports led today’s rally with a huge bounce off 2,310, running all the way to the top of last week’s channel at 2,370.

We got our Nasdaq leadership, but none of the indices were very strong. With the massive hits being taken by Phelps Dodge Corp. (PD) (down 8%), Peabody Energy Corp. (BTU) (- 7%), AngloGold Ashanti Limited (NYSE:AU) (-7.5%), ExxonMobil Corp. (NYSE:XOM) (- 3%) and other commodities, it’s amazing we weren’t down a percent or two.

The XAU (PHLX Gold and Silver Sector Index) may seem like it had a big sell-off with a 3% drop on the day, but it is still well above the June close, and 30% above this time last year. The same can be said for OSX (PHLX Oil Service Sector Index), which is flat to last year but still 50% above Sept ’04 levels.

Oil is now just $10 above September ’04 levels of $55, while gold is about 15% over last fall’s pricing. In both cases however, the underlying commodity was on an upswing and the stock prices reflected high expectations.

OPEC, as expected, elected to leave production levels in place. When your country’s 1m exported barrels a day drop from $75 to $65, you are already out $360m a year. Giving up production of another 100,000 barrels a day ($2.3b/yr) in order to maintain $65 pricing is just not something you get a lot of volunteers for. OPEC needs 10 such volunteers in order to make any significant production cutback.

Gold closed at $597, and what is really awful for both gold and oil bulls is that the dollar was relatively flat today ahead of some big auctions this week.

All-in-all things could not have gone much better. Only the REITs surprised me with a big turnaround on hopes that the Fed is done (but didn’t we already play that song?). Someone is making a big bet on all forms of builders, buying all dips for a week now.

It was a good day not to buy. Even when I was checking in from NY, I had the urge to grab stuff, but we had a weak finish, and the NYSE never made it into positive territory, so I remain cautious going into tomorrow.

I wrote a very long piece on Google (NASDAQ:GOOG), with lots of graphs and a chart.

Today's Picks:

  • We never got close to $2 on the Continental Airlines Corp. (NYSE:CAL) Dec $25s, but the $30s ran up to $1.45 (up 20%).
  • Rio Tinto plc (RTP) gave us a $3 entry on the $190 puts, which I thought was pretty good for a $6 drop, and they finished the day way up at $6.90 for a very nice 130% 1-day gain!

  • Southern Copper Corp. (PCU) made a nice short with an open at $92.25 for the short, and the Oct $90 puts sold for $6, much better than what we looked at pre-market!
  • E.I. DuPont de Nemours (NYSE:DD) Oct $42.50s went nowhere at .20, but the $40s gave us a nice .80 entry and finished at $1 (up 25%).
  • Caterpillar Inc. (NYSE:CAT) is a great example of why we don’t chase. My rules prevented me from buying on Friday as it stayed .15 above my target, and boy am I happy now!

  • Dell Inc. (NASDAQ:DELL) Oct $22.50s came in at .45 and stayed there.
  • Lennar Corp. (NYSE:LEN) got a big downgrade and the Oct $40 puts ended at .95 (up 20%), despite the big rebound in the builders.
  • I had the totally wrong price on the Vornado Realty Trust (NYSE:VNO) Oct $105 puts, which opened at $1.75 and stayed there as the stock went up and down. The DECEMBER $100 puts are $1.90. I don’t know why these were wrong in the morning...
  • Brookfield Properties Corp. (NYSE:BPO) took a nice morning dip to $35.80 but finished the day back at $36.15.
  • Boeing Co. (NYSE:BA) Nov $80s took off to $1.25 (up 25%).
  • Bed Bath & Beyond Inc. (NASDAQ:BBBY) jumped 5% today and the Oct $35s are in the money at $2.05 (up 105%).

  • General Electric Co. (NYSE:GE) performed well today with the Oct $35s still buyable at .35 (up 130%)!
  • Microsoft Corp. (NASDAQ:MSFT) Oct $27.50s are still .15! The Oct $25s are $1.30 (up 20%).
  • Micron Technology Inc. (NASDAQ:MU) had a nice day with the SOX, up 4%, running the Jan $20s to $1.25 (up 200%).
  • Texas Instruments Inc. (NYSE:TXN) made a power move and added 2.5% today. They had nice things to say after the bell, so all should be well from here. Oct $32.50s finished at $1.10 (up 40%).
  • Yahoo! Inc. (NASDAQ:YHOO) Oct $30s jumped up to .95 (up .10).
  • I personally got out of half or my oil and gold puts around 11:30 as they just went too-far-too-fast for my liking:
  • Barrick Gold Corp. (NYSE:ABX) Oct $32.50 puts shot up to $3.30 (up 230%).
  • BP PLC (NYSE:BP) Oct $60 puts are still a good buy at .35 (up .10). $70s finished the day at $5.20 (up 150%), but I took mine out early.
  • Chesapeake Energy Corp. (NYSE:CHK) Oct $30 puts hit $1.85 (up 280%), too much for me to keep. The $30 puts were also dropped at $1.05 (up 550%).
  • Core Laboratories N.V. (NYSE:CLB) dropped another 5% today, now $67.75 (down 11%), not bad for 4 days!
  • EnCana Corp. (NYSE:ECA) had to go as well with the Oct $50 puts at $3.70 (up so much I lost track—call it 600%), and the $55 puts finished at $7.50 (up 370%).
  • Oil Service HOLDRs ETF (NYSEARCA:OIH) Oct $130 puts went well into the money at $8 (up 130%); this one I kept half of...
  • Overseas Shipholding Group Inc. (NYSE:OSG) Oct $65 puts went to $4 (up 180%), and the Jan $60 puts are a bargain at $3.30 (up 120%).
  • Phelps Dodge Corp. (PD) Oct $82.50 puts are already $4 (up 300%), and the Jan $82.50s are $7.60 (up 85%).
  • Royal Dutch Shell (NYSE:RDS.A) $70s ended the day at $4.60 (up 800%), but I was out way back at 600%. The Oct $65 puts are almost in the money at $1.35 (up 105%).
  • Suncor Energy Inc. (NYSE:SU) $80 puts reached an astounding $12.40 (up 600%) on a 5% drop today.
  • Sunoco Inc. (NYSE:SUN) $75 puts hit $11.10 (up 900%), but I rolled into the Oct $60 puts, now $1.75 (up 75%).
  • ExxonMobil Corp. (XOM) $67.50 puts were a good keeper at $2.60 (up 420%).