Options Trader: Thursday Wrapup

by: Philip Davis

Glad I missed today! Very glad I cashed out of oil yesterday, as I was worried about pretty much exactly what happened. We finally triggered our stops on another set of options and I’m relieved to be back with a good supply of cash coming into the weekend.

Getting out of the index options was very lucky too!

We had plenty of reasons to sell today, and were lucky to get a big early sell signal from the NYSE ,which broke down at 9:45, made a half-hearted recovery, and gave up at noon.

Painful as it may be to sit through, we are simply in a healthy consolidation under 8,400.

All the other indices followed suit, so we will have a whole new set of up and downside levels to worry about tomorrow, which I am not going to be missing!

Congrats to the whole gang for running a very informative chat room in my absence! If it weren’t my site I would certainly visit it, as the level of intelligent conversation is about as good as any I’ve been to. We’re developing a very nice synergistic groupthink that I am very proud to be a part of!

Now it is time for a trip into the Wayback Machine, set all the way to --- Monday!

On Monday I said: “I expect a bit of a pullback today and ahead of the Fed, how we handle the pullbacks will tell the tale for the next two weeks... Back at home, we are so far above levels all we can do is look at psychological barriers:

  • The Dow is sitting between 11,600 (wow!) and 11,500.
  • The S&P is just under 1,320 –- this will be a contest to watch. Breaking untested support at 1,310 is a nice cash-out signal for us!
  • The NYSE is, as we have mentioned, far ahead long-term, and is probably going to be the first to pull back, so let’s watch 8,300 for bullish support, but holding the 50 DMA at 8,250 would be just fine. A break above 8,400 will shock the bears.
  • The Nasdaq punched through the 40 WMA last week, and is sitting just above the 200 dma of 2,222. We need to watch the SOX as they will have a big test at 480, above which we may need to start selling -- just so we can buy more!

Ah ha! So I planned this... Now what???

Now we watch and wait. Following our Trading Policies, we have a lot more cash with a few great plays remaining open, so let’s take a night off to assess the situation.

Oil took the anticipated bounce off $60 but didn’t impress anyone with today’s gain. As usual, the oil patch tends to act like oil has gone up 5x the actual movement, and $59 will be a tough nut to crack into the weekend. Out of .80 gained on the day, .60 of it was due to a predictable dollar decline on Fed weakness.

Gold gained $2 on that same weakness but, as it should have gained $6, we are not impressed there either!

Today's Picks:

  • NIKE Inc. (NYSE:NKE) had pretty good earnings today, and the Oct $80s we picked up for $1.55, way back on 8/21, should be in good shape tomorrow. This was an old call I forgot to track in this hectic week, but we made a big deal of it at the time.

Here’s what we are out of today (from Tuesday’s list):

  • Burlington Northern Santa Fe Corp. (BNI) $70s stopped out at $2.35 (up 30%) on the morning dip.
  • Continental Airlines Corp. (NYSE:CAL) dropped way down and the Dec $30s stopped at $3 (up 150%).
  • Caterpillar Inc. (NYSE:CAT) is testing my resolve, but I am going to double down one time on the Nov (shifting a month) $70s for .95 with a stop at .70. The current $70s are .40 (down 60%), and I should be happy if I get .55 for them! The Nov $72.50s dropped to .50 (down 33%). This is what happens when I don’t follow my own trading rules!
  • Following the rules kept us in Core Laboratories N.V. (NYSE:CLB) as it never came back that far. At $61, we are up $12.50 on our short.
  • Coach Inc. (NYSE:COH) formed a very appropriate head and shoulders pattern, but the stop was $33.80 so we are still in the $32.50s at $2.15 (up 180%).
  • My recommended “hair trigger” on Costco Wholesale Corp. (NASDAQ:COST) wasn’t hairy enough to save us from today’s great fall, as Wal-Mart Stores Inc.'s (NYSE:WMT) news rocked the stock. The $50s exited at $2 (up 160%), but the Jan $52.50s held $2.05 (up 25%).
  • Marvell Technology Group (NASDAQ:MRVL) stopped us out on the Jan $21.25s at $2.05 (up 50%).
  • Nokia Corp. (NYSE:NOK) gapped up and stayed up, of all things!
  • United Parcel Service (NYSE:UPS) stopped us out of the $75s at .80 (down 20%) on a scary morning drop, but the Jan $75s are still on at $2.15 (up 7%) for the holidays.

It’s actually amazing how many of these trades are still working. Either the markets aren’t as weak as we think, or I just happened to pick a lot of stocks that refuse to lose...

Let’s sleep on it.

- Phil

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