Options Trader: Thursday Wrapup

by: Philip Davis

Not a bad day! We held all our levels with no trouble at all, except for the transports who barely bounced off the 50-DMA of 2,462, finishing just 5 points above it.

Here is a logic defying chart that indicates that the transports tend to trade more in-line with oil than against it—the fact is that they both trade more based on economic expectations than anything else.

The Dow took a great bounce off 11,500, the S&P held firm, but the Nasdaq led us even higher—even though by just one point. The SOX also moved up a touch but made a nice test of 460, so all looks well there.

Adobe Systems Inc. (NASDAQ:ADBE) had crushing numbers with 24% revenue growth. I always look to them as a barometer for how the web is doing, and it looks like things are busy out there! I’m very upset I missed these earnings, as there was every reason to play this one, but this means game on for Yahoo! Inc. (NASDAQ:YHOO), Google Inc. (NASDAQ:GOOG), and Microsoft Corp. (NASDAQ:MSFT) as the shadow on-line economy is growing much faster than the one they know how to measure.

On the whole, not playing was the correct move for the day, as wild swings in the market made hash of many picks. We had good opportunities to cash out the majority of our positions and in comments we had some fun with some new quick trade positions.

Thanks to Daniel for pointing out this well-written oil article!

It was hard not to have fun with oil plunging to $63.22, putting pretty much all of our puts in very good standing! In some kind of cosmic game of hot potato, serial acquirer Anadarko Petroleum Corp. (NYSE:APC) is selling 8% of it’s gas production to Canadian Natural Resource Ltd. (NYSE:CNQ) for $4.1b—possibly because management got tired of being cavity searched on trips across the boarder.

This is a big mistake for CNQ, but no bigger than APC’s recent buying spree, so we’ll see what sucker bails out Canadian Natural when they have to dump assets to pay for this purchase. Natural gas fell below $5 today, and these consolidation plays are starting to look a lot like the monopolizing that is going on in the gold industry.

Gold took another hit as well, down to $589, and both moves came against a drifting dollar:

There is certainly nothing to complain about, and, as I said last week, everything is proceeding as I have foreseen. I think the Rio Tinto plc (RTP) strike is a great microcosm of what is going on in the global economy—the workers are demanding their fair share of record corporate profits. As they win concessions, they are able to spend money more efficiently than their bloated corporate masters (note to self, stop reading Das Kapital to the kids at night!), whose earnings losses are translated to gains for the companies that directly benefit the people.

In other words, ExxonMobil Corp. (NYSE:XOM) may make $10b less next year, but they will still make a respectable $30b, and the extra $10b will translate to $100m in additional profits for 100 companies you like spending money on, creating a more diverse, robust economy.

Today's Picks:
As I said this morning, don’t trust the action we see; don’t even play so close to expiration. For me that advice held me back all the way through the gas inventory report at 10:30, which had a whopping (or something bigger than whopping) 20% over estimates 108-bcf build, indicating our nation’s storage facilities are bursting at the seams.

  • Zman called EOG Resources Inc. (NYSE:EOG) puts at 10:07, and I confirmed it at 10:12 as it climbed back over $61, and the stock dove after inventory and finished the day at $58.72. Mega-kudos to Zman for making the early call that gas in the Rockies was falling faster than the reports we were getting on CNBC!
  • We also jumped on the CHK $30 puts at .65 and rode them to $1.10 (up 60%) with a timely, non-greedy exit at 3:15. Good pay for 4 hours work!
  • We caught a perfect entry on our Chevron Corp. (NYSE:CVX) and Suncor Energy Inc. (NYSE:SU) put plays at 11:25 on the false rally, this gave us great entry points:
  • SU Oct $65 puts came in at $1.65, finished at $2.15 (up 30%)
  • CVX Oct $60 puts were hit at .85 and finished flat.
  • We also took the Nokia Corp. (NYSE:NOK) Oct $20s for .70.
  • Finally, better late than never on the Peabody Energy Corp. (BTU) $37.50 puts for .50, as that one was still too high at noon. They finished at .65 (up 30%) but were much higher.
  • BP PLC (NYSE:BP) Oct $65 puts were called on for $1.20, despite today’s drop.
  • General Motors Corp. (NYSE:GM) $32.50 puts got us an early double, but I held on too long and ended up with a pretty useless 50% gain, since it's just a nickel, and commissions brought it down to 20% (kick, kick).
  • eBay Inc. (NASDAQ:EBAY) took off early, and I only got my first round of the Oct $30s in at .85 before it ran away. After a pullback they finished the day back at .90 where I took my second round, as I am more confident that I was this morning.
  • General Electric Co. (NYSE:GE) said “ha ha” to UBS and finished very strong for the day. One has to wonder about the option day timing of the UBS/Cramer backed downgrade as GE was just about to crack $35. The mild sell-off and strong recovery indicates to me that there just aren’t many suckers left to flush:

  • I meant to take Bear Stearns Companies Inc. (NYSE:BSC) off the table on the recovery, but it never stopped recovering...
  • We said goodbye to half our E.I. DuPont de Nemours (NYSE:DD) Oct $42.50s right at the top at .65, but I like them again at .50.
  • The Apple Computer Inc. (NASDAQ:AAPL) $72.50 puts were a disaster, finishing at .10 (down 50%), but I held mine just in case. This is a silly, stupid thing to do, but I tend to do these with "funny money" if I have a good week so remember: Do as I say, not as I do!
  • Starbucks Corp. (NASDAQ:SBUX) gave us a great pullback to .35, and the Oct $35s finished at our original .50 target where I still like them.