Options Trader: Wednesday Wrapup

by: Philip Davis

Phil Davis submits: Dow 11,850!!! Wow! S&P 1,350!!! Wow! NYSE 8,538!!! Wow! Nasdaq 2,290!!! OK, we still have some work to do but -- Wow!!! Did I actually attempt to buy puts yesterday? What the heck was I thinking???

Even worse than that, we got stopped out of our Starbucks Corp. (NASDAQ:SBUX) $35 calls at .50 just 2 days ago (still need that jumping out the window sound effect!).

Oh well, it's not all so terrible. We said a fond farewell to a lot of very profitable plays, and our current portfolio is well mixed going into the end of the week.

The markets performed exceptionally well with the Dow gaining 123 points on the day, seemingly picking up steam for a run at 12,000. Hopefully we'll get some follow through tomorrow -- we finally got the transport move we were looking for with that index gaining 3% and running right up to the 2,550 mark we were looking for this morning!

The only blemish on the landscape was the SOX missing the mark by a touch, but a 2% gain on the day is nothing to complain about.

In comments today I didn't like the look of oil at 11:08, and the Valero Rule confirmed an exit at 11:25 so we got out of all our oil puts just in time. In comments, we made some misguided attempts to get back in during the day, as we were generally incredulous of the action but, as you can see from the chart, that was never a good idea!

Oil finished the day up .73 to $59.41, far from our danger zone, and hardly worthy of the 2% leap the sector took. Still, there was nothing to short today, even Yahoo was up.

Our oil puts of the day were short-lived affairs as another huge build in inventory inconceivably led to a rally in the sector. We decided to blame Nigerian Militants today who threatened to attack strategic oil facilities because, logically, it is every militant's goal to increase the oil revenue of the country they are fighting against. To get the lowdown, the press gets regular emails from the militants while the Nigerian government has no comment.

Zman had the chart of the day (.pdf) today in oil, which clearly shows how large the surplus is getting.

Gold dropped another $15 for the day against a strong dollar despite Bernanke taking some time today to remind us the Social Security system is dooming our future.

The ISM numbers, although weak, showed slowing inflation, and sounded like the Fed may actually cut rates at some point -- leading to a tremendous rally.

Today's Picks:
It was good to set low targets as it kept us out of trouble, something I will do more of in the future, as not everybody follows My Trading Policies entering and exiting trades.

  • Anadarko Petroleum Corp. (NYSE:APC) was a no-trade, opening way over our target.
  • We picked up the Bed Bath & Beyond Inc. (NASDAQ:BBBY) $40s in comments, as .60 just seemed too cheap (now $1).
  • Baker Hughes Inc. (NYSE:BHI) Nov $65 puts opened at $2.60 and we escaped with $3.30 (up 27%).
  • New Chevron Corp. (NYSE:CVX) $60 puts never hit our target, but our 2 existing Nov $60 puts exited at $1.15 (up 80% avg) and both Nov $65 positions closed at $3.60 (up 50% avg).
  • Cheniere Energy Inc. (NYSEMKT:LNG) Jan $30 puts are done at $5.30 (up 80%).
  • Oil Service HOLDRs ETF (NYSEARCA:OIH) $125 puts were let go at $7.30 (up 175%).
  • At 11 I said: "Phelps Dodge Corp. (PD) at 10% -- time to take some off the table... Maybe pre-roll to the Nov $70 for $2 with a $1 stop then set a tight stop on the puts we have..." That led to the PD $80 puts coming off the table at $4 (up 248%) and the Nov $70 put now held at $2.20 (up 10%) with a .50 trailing stop.
  • Royal Dutch Shell (NYSE:RDS.A) was a no trade.
  • Schlumberger Ltd. (NYSE:SLB) Oct $55 puts dropped to $1.05 (up 75%)
  • SLB Oct $57.50 puts exited at $2.05 (up 215%)
  • SLB Nov $57.50 puts finished at $3.10 (up 114%)
  • Suncor Energy Inc. (NYSE:SU) $65 puts finished at 2.65 (up 194%).
  • The Houston Exploration (THX) $55 puts are done at $3.20 (up 31%).
  • Toyota Motor Corp. (NYSE:TM) Jan $125s finished the day strong at $2.10 (up 91%), and we should have very tight stops (.30T) on our Jan $115s at $5.80 (up 132%) as well as the new calls.
  • Tesoro Corp. (NYSE:TSO) $55 puts stopped out at $1.85 (up 106%).
  • Valero Energy Corp. (NYSE:VLO) Oct $50 puts ended 2 short runs at $2.40 (up 100%).
  • VLO Nov $47.50s finished at $2.10 (up 56%).
  • ExxonMobil Corp. (NYSE:XOM) $65 puts hit our entry at 10:30 and we were out of it 45 minutes later at $1.20 (up 41%), what's the ROI on that? We never got the $62.50 puts or the November calls. We did, however, close out a lot of XOM plays:
  • The $62.50 puts closed at .45 (up 29%).
  • 3 sets of $65 puts closed at $1.95 (up 200% average)
  • 2 sets of Nov $65 puts closed at $1.95 (up 66% avg)

That leaves us with a nice, manageable, 38 open positions that are up 1% over 14 days. This is not bad since we have closed 26 positions for 97% over 6 days so far this week!

  • What's killing us? 3 Google Inc. (NASDAQ:GOOG) puts left over from spreads we took off the table (looking bad!), Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) disasters, and Yahoo! Inc. (NASDAQ:YHOO) calls, which are all long plays I still believe in.

Other than that, things are going fairly well and it will be exciting to see what the market holds for us tomorrow!

Read all of Phil Davis's articles on Seeking Alpha.