Options Trader: Tuesday Wrapup

by: Philip Davis

That was a pretty exciting day! I’m starting to feel like Chicken Little here, trying to say the sky is falling on a beautiful clear day. While I have long contended that stocks are way too cheap, I am still baffled by the enthusiastic buying of Builders and oil companies given the current market conditions.

As I was reminded in comments, I did make a bottom call on builders on 8/22, against Toll Brothers Inc.'s (NYSE:TOL) scary earnings report, but that was 20% ago! This just seems a little overdone at this point...

Gotta have your rally cap on for this one though! I’ve never had so many stocks that I’ve set stops on not trigger for 3 straight days. They just keep going up!

24 of 30 Dow stocks were up today with just Altria (NYSE:MO) (for good reason), Merck & Co. Inc. (NYSE:MRK), AT&T Inc. (NYSE:T), Honeywell International Inc. (NYSE:HON) down a bit, and Hewlett-Packard Co. (NYSE:HPQ) and JPMorgan & Chase Co. (NYSE:JPM) down just a penny each. Walt Disney Company (NYSE:DIS) (9/6 pick), Caterpillar Inc. (NYSE:CAT) (every day pick), Intel Corp. (NASDAQ:INTC) (9/19 and today pick), ExxonMobil Corp. (NYSE:XOM) (Boo hiss!), General Electric Co. (NYSE:GE) (every day pick), Boeing Company (NYSE:BA) (9/8 pick) and General Motors Corp. (NYSE:GM) (not a pick but I called it to $33 yesterday) were all the top gainers (over 1.5%), other than American Express Company (NYSE:AXP), which we usually pick but for some reason I forgot.

I have moved from gravely concerned to cautiously optimistic, but have not yet deployed the cash we’ve been accumulating as stops triggered. I am wondering how many pro traders are doing the same and at what point we will have to give up and just start buying stuff.

There is nothing worse than underperforming the S&P for a fund and that fear is driving a lot of the buys this week. I’ll feel much better about things once we get past next Wednesday but I hope that isn’t another 300 points from now!

The Dow looks like it is heading for 12,000, and I was so pleased to take a 33% profit on my DIA $117s last Wednesday... Oh well, the price of being careful! A week later, the Dow is 50 points higher and the calls are up just .15 from our exit.

The S&P blew out 1,330, tested it twice and said sayonara like it was the Nikkei, and I have to say that this is just fantastic! I so hope this isn’t a fake rally because it looks so good!

The NYSE again is my main concern as it topped out EXACTLY at the 9/5 high of 8,452. On 9/7 the NYSE was at 8,230! The Nasdaq was the mellowest index, gaining just half a point on the day, held back because they forgot their SOX, which lost .33%.

Even my transports, which concerned me during the day, took off around 1:00 with what looked like a sustainable move –- ending 1.5% higher.

Speaking of embarrassing rejections -- oil did pretty much nothing as an attempt to get it back to $62 by determined pumpers was met by a huge sell-off by relieved sellers who took advantage of the pre closing pump to force huge amounts of oil down the pumpers throats.

This is where this kind of manipulating activity comes back to bite you as people start taking advantage of the counter-play!

This just in, our crack research team has uncovered the mastermind involved in one of the world’s greatest oil scams! Between 2001 and 2005 these fiends bought 200M barrels of oil just to take them off the market, causing the appearance of an additional 1M barrels a week of US demand (+5%), driving the price of oil from $30 to $60 by buying at any costs! We dare not speak their names but the evidence is right here!

Their fiendish plan was foiled when they ran out of room to store more oil, but they are now working on some Dr. Evil-like scheme to liquefy natural gas so they can start buying mass quantities of that as well! Speaking of LNG scams: Here’s a good one!

Let’s watch this interesting development as somebody somewhere started buying dollars (maybe it was just me cashing out my plays), which, if it continues, will have a serious impact on the commodity markets. Gold was flat.

Clinton is pissed! He’s coming after Bush re. that article I published a while back. He is sick and tired of the right wing running on a Clinton caused 9/11 platform.

Today's Picks:
We should still be using very tight stops at 20% of the profits in the hopes of getting some pullback. If we don’t get the pullback, we will simply buy out of the money next week as the Dow climbs 500 points on an historic run!

  • Cramer is featuring DivX Inc. (DIVX) after a lackluster IPO, but I have to agree with him. Too bad his minions are driving it up 10% in after-hours trading...
  • Did Harrah's Entertainment Inc. (HET) and Las Vegas Sands Corp. (NYSE:LVS) move to different planets? When did JPMorgan & Chase Co. (JPM) get so powerful? We stopped out on 9/22 (I love my new tracking system!) on that strange morning drop, but now we are down 6% from the 9/21 high. Lesson: The stop is good, the stop is wise, listen to the stop (when you can’t see any other reason at least).
  • We had a hard time getting rid of things but a few stocks hit our trigger:
  • Barrick Gold Corp. (NYSE:ABX) $32.50 puts finally stopped out at $3.30 (up 313%).
  • AFLAC Inc. (NYSE:AFL) $45s had a huge spike in the morning that stopped us out at $1.10 (up 83%).
  • Amgen Inc. (NASDAQ:AMGN) $70s stopped us out at $2.35 (up 62%).
  • Bed Bath & Beyond Inc. (NASDAQ:BBBY) was up and down but the $37.50s kept going up to $2.30 (up 130%).
  • Best Buy Co. Inc. (NYSE:BBY) Dec $57.50s stopped out at $2.90 (up 45%)
  • Brunswick Corp (NYSE:BC) flew into the money on the Mar $30s at $4 (up 45%) pausing at the 5% rule.
  • Citigroup Inc. (NYSE:C) $50 puts stopped us out at .95 (up 20%) -- we should have taken the $1 yesterday!
  • Caterpillar Inc. (CAT) went up all day and the $70s jumped back to .55 (up a nickel) and I took my Nov $70s off the table as they ran up to $1.15 (up 30%) as it made up for my other CAT losses!
  • E.I. DuPont de Nemours (NYSE:DD) $40s came off the table at $3.30 (up 313%), but still no reason to sell the $42.50s at $1.30 (up 130%), but let’s stop at $1 (.30 trail) on this roll!
  • Dell Inc. (NASDAQ:DELL) ran into the 5% rule (from yesterday’s open) today and there was no pullback as the Jan ’08 $27.50s shot up to $1.95 (up 50%). 5% Rule says a stock that comes to a rest at 5% EOD will continue on in the morning...
  • Gannett Co. Inc. (NYSE:GCI) had another great day with the Jan $65s hitting .30 (up .10) and the Jan $60s hit $1.30 (up 53%).
  • General Electric Co. (GE) had a great day (up .55), and the $35s are in the money at .85 (up 143%) and should have a trailing .15 stop.
  • Intel Corp. (INTC) had a huge day driving the $20s to .65 (up 44%) as we held our SOX target for the day!
  • Cramer is on the Johnson & Johnson (NYSE:JNJ) bandwagon and it went crazy in the after-hours! The $65s closed at .70 still down 20% from our original bet but down just .02 from our double down call. I will take half off on a big gain in the morning to reduce the basis on my original bet.
  • Toll Brothers Inc. (TOL) did indeed climb 1.3% on Lennar Corp.'s (NYSE:LEN) terrible report -- I was too busy joking about it to make a call (kick, kick).
  • Medco Health Solutions Inc. (NYSE:MHS) $60 puts triggered out at $2.80 (up 180%) on a huge morning run-up.
  • Morgan Stanley (NYSE:MS) just keeps getting worse and worse for me with the $70 puts getting far away at .50 (down 45%). I would be really upset if the rest of the market wasn’t doing so well.
  • Phelps Dodge Corp. (PD) opened with a stop out on the Jan $82.50 puts at $8.25 (up 96%).
  • Starbucks Corp. (NASDAQ:SBUX) $35s came back down to .60 (.55 for about a minute) and finished up a dime, back at .70.
  • Back in the Sony Corp. (NYSE:SNE) $40 puts at .50.
  • We sure got our choppiness on United Parcel Service (NYSE:UPS), up 1.25% for the day!
  • I said Yahoo! Inc. (NASDAQ:YHOO) would be a gut check and I’m throwing up! Another huge drop in the morning left it at $25!

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