Options Trader: Tuesday Wrapup

by: Philip Davis

Phil Davis submits: Yay! New record! Yippee! OK, now what the heck was that? Advancers barely led decliners and down volume was close to double up volume. I mentioned in comments that it had the smattering of a program trade that triggered when oil went below $59 and several CNBC guys seem to agree with me.

For innocent or devious reasons, someone bought up the Dow today. The other indices dutifully followed but what kind of Nasdaq rally goes with a 1% loss in the SOX and why, still, can't the transports break 2,500?

Let's give it a day or two and see what's what, but on the whole the markets did pretty well against a 4% commodity sell-off.

I'm actually really pleased because that open item list that was at 0% this weekend and really concerning me is now at a fairly healthy 27% with 68 open positions averaging 9 days-old.

The Dow punched through but left a little to be desired at the end. The S&P still can't break 1,340, and I'm still waiting for that to get bullish, while the Nasdaq is still 30 points under last week's 2,273 short-term high.

With all the hullabaloo going on about the 30-stock Dow did any of the responsible journalists you listen to mention that the 3,000 stock NYSE was down 13 points today?

Oil was our star of the day with a plunge to $58.68 (.07 off the target I called at 11:06) while gold lost a whopping $21 to finish at $581. That oil target was, by the way, a 5% drop from our last retracement attempt at $61.69 so we actually called this on 9/25 within 7 cents. On that day I also said $57.14 was reachable on the next leg down so tune in tomorrow!

It really hurts my feeling that they are giving out prizes in Stockholm this week to a couple of guys who found a really old star and here I am with the very useful 5% Rule, the Valero Rule and the Microwave Oven Theory and not a medal to show for it!

Come on -- one of you readers must be a famous economist who can nominate me (you -- Greenspan, you've got nothing else to do this week!).

Enough about me, let's see how our picks did:

Today's Picks:
The markets went up, and then they went up, and then they went up some more. Needless to say, our puts on GameStop Corp. (NYSE:GME), Best Buy Co. Inc. (NYSE:BBY) , Infosys Technologies Ltd. (NASDAQ:INFY) and SanDisk Corp. (SNDK) were off.

  • I don't know what happened to Select Comfort Corp. (NASDAQ:SCSS) but they gave us an amazing entry on the Nov $22.50s at the open before moving back to $1.20 (up 20%) but I got too busy with oil to take it myself!
  • Continental Airlines Corp. (NYSE:CAL) had a great day, gaining 4% and the Nov $30s shot up to 2.90 (up 33%).
  • Marvell Technology Group (NASDAQ:MRVL) was good all day (other than that horrific open) and the Jan $18.75s were selected around 11 in comments for .95 (now $1.25) while I decided I liked the Jan $17.50s for $1.40 (now $1.70) better (lower premium) and Wolf decided to go for it with the Nov $18.75s at .45 (now .60).
  • In my never-ending quest to short the brokers, I couldn't resist the Morgan Stanley (NYSE:MS) $70 puts for .40, which promptly beat me out of yet another nickel!
  • Also too cheap to resist were the Citigroup Inc. (NYSE:C) $50 puts for .65 but they finished down a nickel at .60 with the stock at just $50.10 -- still seems good to me!

The commodity puts were a different story altogether, with winners across the board. We got a great follow through from the very clear Valero Rule signal we picked up early yesterday.

I stopped out around 11:30 but we were back in at 12:00 as we decided that the day's afternoon pump was not up to snuff. It's a little day tradish for my taste but it did save us 30 cents on ExxonMobil Corp. (NYSE:XOM), for example so why not?

  • XOM $65 puts finished strong at $1.10 (up 100%) and the Nov $65 puts ran up to $1.95 (up 56%). The Nov $70 call opened at .60 and finished at .55 but we never triggered it.
  • We also selected the XOM $60 puts at 10:20 for .35 as a way to roll out of the $65 puts -which we did twice -- leaving the $60 puts for free!
  • Chevron Corp. (NYSE:CVX) Nov $65 puts ran up to $3.40 (up 36%), and the Nov $60 puts outperformed them at $1.10 (up 83%).
  • Schlumberger Ltd. (NYSE:SLB) took it's sweet time but plunged near the end driving the Nov $57.50 puts to $2.65 (up 83%).
  • Valero Energy Corp. (NYSE:VLO) $50 puts went all the way to $2.65 (up 121%), and the Nov $47.50 puts already hit $2.30 (up 70%).

These are not bad gains for a day! Of course we had a ton of other very profitable oil puts and I'll put up a new spreadsheet tomorrow!

  • Phelps Dodge Corp. (PD) $80 puts were the gift that kept on giving as the stock ran down 6% on the day and finished at $3 (up 161%).

As we are a cautious bunch we took half off the table by the end of the day -- just in case we get a pre-inventory run-up. Tune in tomorrow for more fun with commodities!

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