Options Trader: Tuesday Wrapup

by: Philip Davis

Well, if that was a test the market certainly passed it! We did blow a trade on Johnson & Johnson (NYSE:JNJ), losing 30%, but our other 14 picks were all winners with an average return of 60% for the day—so of course we're happy!

Pretty much everything went well today. Oil went way down. And while the energy sector was weak, it didn't tank the market. Commodities across the board made an orderly move down, and our indices all broke up nicely.

The Dow flew up to 11,500 and closed just beneath it at 11,498. The S&P blasted through 1,310 on a big afternoon move and settled at 1,313. The NYSE was over 8,300 in the first 5 minutes of trading, rested a bit and shot up another 50 points to close at 8,348. Even the Nasdaq looked great today, posting a 42 point gain to finish at 4,215.

The SOX and the Transports raced for leadership with the SOX flying up 4% to finish at 465 and the TRANQ also made a 4% gain to 2,464 where it will test the 50 DMA of 2,475 tomorrow:

Oil had a very unusual late day sell-off, with people selling into the normal afternoon buys on huge volume. Crude finished at $63.76, well below anyone's prediction for the week, including this oil bear.

Gold drifted down to $594 on another day of unremarkable dollar movement as a robust treasury auction was tempered by an IMF warning on possible global instability:

On the whole it was another great day of trading, so I hope everyone had as much fun as we did with our picks!

Today's Picks:

  • Best Buy Co. Inc. (NYSE:BBY) performed as expected this morning with the Oct $47.50s coming down to $1.65 before finishing well in the money at $5.50 (up 230%), not bad for a day's work!

  • Coach Inc. (NYSE:COH) gave us a nice flat open before taking off around 10:30, and the Oct $32.50s are in the money at $1.95 (up 145%).
  • Costco Wholesale Corp. (NASDAQ:COST) also gave us a nice low open, and the Oct $50s stopped out at $1.60 (up 115%) on a pullback, leaving us with the Jan $52.50 at $1.90 (up 25%).

  • Walt Disney Company (NYSE:DIS) had a nice day, also with a low open, and the Oct $30s are now in the money at $1 (up 40%). Now that it finally broke $30 I expect a lot more!
  • Slow and steady is General Electric Co.'s (NYSE:GE) pace, with the Oct $35s adding a dime to .45 (up 80%).
  • Johnson & Johnson (JNJ) was my big disappointment today, and the Oct $65s dropped back to .70 (down 30%). This may indicate that this rally really will be a Nasdaq-led affair!
  • Nokia Corp. (NYSE:NOK) picked the right day for a power move, with a 3% gain, and our Oct $20s finished at .85 (up 40%).
  • Restoration Hardware Inc. (RSTO) had a nice strong day and finished at $7.34 (up 4%).
  • Sony Corp. (NYSE:SNE) held its ground and the Jan $45s moved to $1.95 (up 10%) but we may get a big overnight move in Asia later. We should have bought Toyota Motor Corp. (NYSE:TM) for that reason...
  • Seagate Technology (NASDAQ:STX) gave us an early scare, but we discussed it in comments and decided to hold on, which was great as they tacked on another 2% to end the day. The Mar $22.50s are $2 (up 20%).

  • Target Corp. (NYSE:TGT) had a very nice day, and the Oct $52.50s are already up to $1.65 (up 65%). We let go of our other positions up over 100% on the Oct $50s and up 140% on the Oct $47.50s.
  • Sears Holdings Corp. (NASDAQ:SHLD) would have been a good trade too, up 3% on the day, but the options were just too ridiculous.
  • Tiffany & Co. (NYSE:TIF) continues to go up and up, and the Jan $35s are already $1.75 (up 75%), but expect a bit of a pullback as a nasty major picture is out this week blasting the diamond industry:
  • Try this line on your anniversary: "I would have gotten you a diamond honey but I just didn't want to burden you with the knowledge that people live and work in horrible conditions to mine those things."
  • United Parcel Service (NYSE:UPS) looked like a shuttle take off, and the Jan $75s are already $2.60 (up 30%):

  • Williams-Sonoma Inc. (NYSE:WSM) had another great day, and the Oct $32.50s look reachable at .85 (up 240%). This is a great example of how rolling a good position can be a wonderful thing!


We actually have too many great picks to list. The above list was just this morning's calls, so let's just say that, for the most part, set very tight (20% of the profit) stops on whatever is left, and let's try to move on with some new things as it is no fun for me to rehash the same old stuff every day.

I will try to comment on ones I feel strongly about but, for the most part, once we make 50% on a position I feel my job is done. As with some of today's comment picks (like the disastrous choice I made to short Apple that worked for 10 minutes before turning bad) make sure we stop out of losers quickly as there are far to many good stocks to waste time worrying about a clunker.


  • Continental Airlines Corp. (NYSE:CAL) gained a whopping 10% today and the Dec $30s jumped to $2.50 (up 110%).
  • E.I. DuPont de Nemours (NYSE:DD) continues to move up nicely and the $42.50s are still just .25. I think sub $65 oil is going to move this stock in a big way!
  • Dell Inc. (NASDAQ:DELL) had a great day, up 3% and the Oct $22.50s finished at .65 (up 40%).
  • Lennar Corp. (NYSE:LEN) stopped us out as the Oct $40 puts collapsed to .50 (down 40%) on a 5.5% gain on the stock.
  • Vornado Realty Trust (NYSE:VNO) also reversed on us and wasn't worth keeping for a 20% loss.

  • Bed Bath & Beyond Inc. (NASDAQ:BBBY) had another strong day, bringing the Oct $35s up to $2.45 (up 145%).
  • NASDAQ 100 Trust Shares ETF (QQQQ) Oct $39s are in the money at $1.50 (up 55%), and the current $39s should be sold at .85 (up 150%).
  • Sunrise Senior Living Inc. (SRZ) continues to laugh off the downgrade, and the Jan $30s are $4.10 (up 100%). Very tight stop on this one, or perhaps sell the Oct $30 for $2.70 to lock-in profits and protect against a pullback.
  • AAR Corp. (NYSE:AIR) finally took off with the Feb $25s at $1.60 (up 25%).
  • Fairchild Semiconductor Intl. (NYSE:FCS) got the SOX move we needed and the Jan $20s are $1.55 (up 40%).
  • Bear Stearns Companies Inc. (NYSE:BSC) went up with the sector and the Oct $140s are $2.15 (up 60%).
  • Marvell Technology Group (NASDAQ:MRVL) kicked into gear with a 9% gain and the Jan $21.25s are $1.70 (up 60%).