Options Trader: Friday Morning Ideas

by: Philip Davis

Options Expiration Day! Have a nice Weekend - end of column.

Déjà vu? Yes, I said this last month (and probably the month before), and there’s a reason that I woke up and could only think of that to say—it’s logical; we had a great month, relax, have a long lunch, read a book, call your mom... Trading today, on the other hand, not such a good idea...

Seriously, last month I said: “Nothing that happens today is real. We have chased the white rabbit through the looking glass after eating a mushroom and pretty much anything goes today.”

In fact, everything I said last expiration day is still true today. It is great perspective to read last month’s column, especially for new readers, so please read this:

Go on, I’ll wait...

I think the most interesting thing is the levels we were looking for:

  • Dow 11,300, now 11,549
  • S&P 1,290, now 1,320
  • NYSE 8,350, now 8,350. This is OK because the S&P, as you remember from a chart I can't find, is 40% ahead of the other indices since 9/11.
  • Nasdaq, 2,150, now 2,228

Boy, I guess we had a pretty good month! People (who just started reading) have been calling me a “perma-bull,” but what’s wrong with being bullish when the market is going up?

So we’re not too worried about levels today. Like I said, just sit back and enjoy the show. I’ve been saying all week that the CPI will be “better than expected,” and hopefully we’ll hit a sweet spot that’s good for the economy (not too slow), and keeps the fed away (not too high)— we’ll see in an hour...

One show we are sure to enjoy is the great oil pullback of 2006 (now in your local theaters)! As predicted by someone more awake than I am in yesterday’s comments who said: “How freaked out would you be with $100b in oil stocks seeing a $62.xx on the screen with the quarter ending in 16 days?” and (at 3:10): “If I were a fund manager I would be very concerned about overnight trading in Europe and Asia gapping oil below $62.50 (they will find out about US inventories tomorrow).“ Well, good morning and Brent (European) oil is down to $62.50 in overnight trading (who was that masked man?).

Expect US manipulators to fall over themselves trying to defend $63 today but, if they fail, big fun!!!

Gold can’t survive a low CPI and falling oil prices, but I still can’t bring myself to short the miners until copper follows suit.

If you really want to play this market, we still need to review the past week’s picks and get some of the laggards like Caterpillar Inc. (NYSE:CAT) and Boeing Co. (NYSE:BA), but I think we are moving back into a tech cycle and we may need a little more time to get the transports moving.

We’ll be bargain hunting today, especially for stocks that get forced down into expiration (like Google), which may be ready to fly next week.

I cannot emphasize enough, it has been a very good month, let’s just sit back and enjoy the show!

If the markets pull back 1/2 of their morning run-up, I will be taking most things off the table, as I always prefer cash into the weekend!

Today's Picks:

  • If those nutty oil traders try to jack up sector players in the morning or afternoon I’ll be more than happy to add to our open put contracts, all of which are still cheaper than our Wednesday targets.
  • Tuesday we made a call on the retail sector and Best Buy Co. Inc. (NYSE:BBY) still looks like it has room to run, but let’s roll the Oct $47.50s, now $5.70 (up 250%) into just a few (maybe 1/3 of profits) Dec $57.50s for $2. This gives us a nice long look on an amount equal to our original play, while pocketing our base plus a 150% profit. Won’t you sleep better on the weekend with that play?
  • Now we know what’s up with Seagate Technology (NASDAQ:STX)—they made a storage breakthrough, beating IBM. Very impressive! We halved out of the Mar $22.50s on the run-up, but the Oct $25s for .40 make a nice companion play with the profits there, as we are still well below our targets.
  • United Parcel Service (NYSE:UPS) got a nice pullback and the Jan $75s are still playable at $2.35 (up 20%).
  • Williams-Sonoma Inc. (NYSE:WSM) is poised to explode, and I’m for taking ½ of our Oct $32.50s off the table at $1 (up 300%) and rolling half the profits into the Oct $35s for .20, taking our original amount off the table while keeping a .75 stop on the rest of the $32.50s.
  • Walt Disney Company (NYSE:DIS) Oct $30s are still just .95 (up 35%).
  • Costco Wholesale Corp. (NASDAQ:COST) Jan $52.50s are still playable at $1.90 (up 25%).
  • Yahoo! Inc. (NASDAQ:YHOO) looks like a bargain with the Oct $30s still just $1.
  • Florida Rock Industries Inc. (FRK) Mar $45s are $2.50 (down .20) despite a decent week.
  • Starbucks Corp. (NASDAQ:SBUX) Oct $35s, still .50.
  • Cramer said to sell eBay Inc. (NASDAQ:EBAY), so we get another chance to pick up the Oct $30s for .85!
  • Microsoft Corp. (NASDAQ:MSFT) Oct $27.50s are a 'mon back at .15!

Kudos to Eric Savitz for being totally on the ball with this article.