Options Trader: Weekly Wrapup

by: Philip Davis

Phil Davis submits: Another pretty good week considering I'm being overly cautious! I have a whole month's worth of closed positions I wish I had back, but we still managed to pull another week out of the hat with an 80% average gain on 48 closed positions with an average holding time of 7 days.

There were 44 winners and 4 losers (and I am ashamed to say SBUX was one of them, as we let ourselves get stopped out early!) with 26 gains of 50% or more, 14 of which were doubles. The official spreadsheet can be found HERE.

One reason for our excellent winning percentage is the fact that our remaining 35 positions are actually down 3% at the moment as I've been grabbing profits off the table on my general concern about the markets.

Our open folder still holds the other end of the Google spreads and a lot of rolls, which makes it look bad, but a loss is a loss so I count them as such regardless of the offsetting gain.

Today wasn't much of a pullback!

We took very nice bounces off our technicals, testing the Dow 11,800 mark at 12:45 and having none of it.

The rise of the Dow and lockstep motion of the other indices was so steady that it put the VIX back to sleep, a very bullish indicator:

For the week, we got the Nasdaq leadership we always wanted with a 2% gain in that group.

Very impressive as the SOX ended the week down 1% but holding 450:

The NYSE fell a little behind the other indices.

But this too is healthy as the NYSE has been the leader for a long time. That index also made a point of testing my mark today!

Oil finished the week at $59.76, down exactly 5% from the week's open, resting 25% off the July double top at $79.50.

This week's low of $57.75 is just under 25% from the lower high of $77.70 we tested in early August.

If you look at the weekly chart, last October 6th was simply the mid-point of a $24 (35%) post Rita slide to $56.

Gold held $576 for the day, showing surprising strength, as did all commodities on indications that the U.S. economy was much stronger than people thought.

The U.S. dollar was the story of the day though, with an explosive rise as it became obvious that the Fed is unlikely to be done tightening:

As I said on Tuesday morning: "The Fed would be remiss not to take advantage of the flood of capital spilling onto the global markets and a rate raise is the prudent thing to do -- does Bernanke have the nerve to do it?" Apparently he does!

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We took some new oil positions in the morning but none of them lasted more than an hour and we exited with not much to show for it, but I called game-back-on at the end of the day and we ended up getting back in cheaper than our morning picks (possibly to our regret, looking at Valero's EOD action).

A bunch of open calls got flushed out as we called for tight stops and it was a rough day, but I like going into weekends in cash. I will post the updated spreadsheet over the weekend.

None of that actually mattered as we all had a huge party shorting General Motors Corp. (NYSE:GM) this morning. The short recap is that the $32.50 puts came down to .65 causing me to double-down on yesterday's position and re-calling it at 10. We bought more at .60 and .55 as Cramer came out with a recommendation that shot the stock up, but then the bad news hit and we exited half at 12:20 for $1.75 and I rolled the rest at $2 (177% avg), putting a small percentage of the profits into the $27.50 puts for .25.

If you want to see how we do trades during the day, check out how it happened in the comment section!

So, that being said, I have nothing else to wrap up for Friday and we can just take a nice look at our best and worst calls of the week!

This Week's Picks:
The Best:

  • XOM, XOM, XOM gave us 3 doubles this week including a 255% 2-day gain on the $65 puts. We took that same position 4 times this week at .85, .85, .65 and .55 and sold the last 3 for $1.95 on the 4th -- take that ChannelingStocks.com! We went back to the well again at the end of that same day, picking them up at .40, as they just seemed very cheap at the time!
  • Valero Energy Corp. (NYSE:VLO) was a big hit too with 5 different entries, but we did have a little more variety there and those positions returned an average of 70%.
  • Other commodity shorts that went very well were Phelps Dodge Corp. (PD) $80 puts at $4 (up 248%), Schlumberger Ltd. (NYSE:SLB) $57.50 puts at $2.05 (up 215%), Suncor Energy Inc. (NYSE:SU) $65 puts at $2.65 (up 194%) and Molson Coors Brewing Co. (NYSE:TAP) Nov $70 puts at $5.40 (up 192%). Anyone who doesn't think beer is a commodity just hasn't been to college...
  • It's a sad statement on the U.S. auto industry that we made money in the same week on Toyota Motor Corp. (NYSE:TM) going up with the Jan $115s finishing at $6.70 (up 168%) and on General Motors Corp. (GM) going down with the Oct $32.50 puts making our day trade of the month at $1.80 (up 177%).
  • We should have taken the one day profits and ran with LG Phillips LCD Company Ltd. (NYSE:LPL) as the Nov $17.50s gave back half our gain this morning to stop out at .85 (up 143%).

The Worst:

  • The absolute worst call of the week was a 17% loss. Not because of the amount but because I was so skittish on the markets that I forgot why I bought Starbucks Corp. (NASDAQ:SBUX) $35 calls at .60 for in the first place. I rebought them way back on 9/19 and they fell victim to an automatic stop on Monday.

Had I gone back and read my own comments, I would have seen the following:

9/14: "SBUX Oct $35s are cheap enough at .50 to play the drop in coffee prices (not theirs, the commodity)". EOD: "SBUX gave us a great pullback to .35 and the Oct $35s finished at our original .50 target where I still like them."
9/15 "SBUX Oct $35s were exited in comments at .75 as 50% in one day seemed like plenty."
9/20 "Someone pointed out that SBUX $35s fell to .50 in comments and we should have picked them up again, now .60."
9/22: "SBUX raising prices yet again -- gotta love this stock! They are just daring you to not buy it!"
9/26: "SBUX is being sued for crushing competition -- Yawn! I asked Bill Gates if I should worry and he fell off his chair laughing. If they want to sell me more $35s below our original entry at .60, I will buy them!" EOD: " SBUX $35s came back down to .60 (.55 for about a minute) and finished up a dime, back at .70."

Yet after all that I set an auto stop at .10 and got taken out of the position on Monday for .50 missing a very nice run to $4+. I hope I learned a valuable lesson -- it was certainly an expensive one. I should spend the same time reviewing my exits as I do my entries!

Our other losers for the week were:

  • Peabody Energy Corp. (BTU) (bad timing) Nov $35 puts which cost us a nickel as the Valero Rule saved us from worse on Thursday afternoon.
  • Walgreen Comp. (WAG) Nov $45s which I could have kept (some of us did), but I was happy to get my money mostly back this afternoon. A daytrade on the puts (see comments) actually turned this one into a profit, but I've turned bearish on the sector (see morning article).
  • Taro Pharmaceutical Industries Ltd. (NYSE:TARO) was our disaster of the week with a 25% loss and I do know why I bought them but apparently they can't get out from under this delisting cloud so I moved them to my watch list.

Regrets:

I've had a few, but then again, too many to mention -- but here's a few biggies:

  • SBUX, SBUX, SBUX, SBUX, SBUX, SBUX, SBUX, SBUX!!! I just need to get that out of my system...
  • I stopped out of Boeing Co. (NYSE:BA) Nov $80s at "just" $2.70 on the 26th -- now $5.40.
  • I was too nervous about the economy to ride Bed Bath & Beyond Inc. (NASDAQ:BBBY) past last weekend as we had a lot of huge winners but I doubt I would have stuck Monday's action out regardless.
  • Same story with Best Buy Co. Inc. (NYSE:BBY).
  • Consolidation Prize team member, Brunswick Corp (NYSE:BC) really took off this week too.
  • I should have held Burlington Northern Santa Fe Corp. (BNI) longer.
  • I lost confidence in my BP PLC (NYSE:BP) puts.
  • It would have been nice to have kept (or rolled) my Bear Stearns Companies Inc. (NYSE:BSC) $140s at $3.10 (up 130%), especially as my biggest losers in our current list are my Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) puts. My mistake there, assuming they were overbought and not hedging the position.

And that's just the September Bs! I skipped the As because I still can't bring myself to think about the time in July when I didn't buy the Apple $52.50s because they missed my target by a nickel on the day they took off (d'oh, now I'm thinking about it!).

So I'll stop there as you can always beat yourself up over things you didn't do, but we did close out 136 positions last month at a 92% average profit and you'll have to forgive me if my unstoppable market rally strategy is a little rusty after 7 years of waiting.

Stick around, we'll get the hang of this thing yet!

Have a great weekend,

- Phil

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