Options Trader: Thursday Wrapup

by: Philip Davis

Phil Davis submits:Hooray for the Energizer Rally! The Dow just went up and up and up, closing at 11,947 -- enough to get CNBC to start a 12,000 counter. Gosh this is almost an exact reset of last weekend when I said they were trying to close on a high so all the retail buyers would go into the weekend feeling like they were missing out.

Last week I said, "If I were an evil market manipulator I would want to hit the Saturday papers when people have time to read about it and also after Time and Newsweek go to print so I can assure a headline next week as well. This will bring in the maximum amount of suckers (I mean new clients), for me to dump (I mean share they joy of ownership of) my inflated (I mean valuable) shares on."

I think Kim Jon Il ruined that plan last weekend, so they're going to take another whack at it this weekend with a story number: Time Magazine cannot ignore -- 12,000!!!

The S&P actually outpaced the Dow today and took no prisoners as it virtually jumped over 1,360 to close at 1,362.

The NYSE blew through 8,600 while the Nasdaq flew to 2,346. With the SOX up 2.7% on the day, there was never any doubt about tech's direction. The transports got off to a slow start but, after the beige book said the economy was pretty good, it was party time for all the indexes!

Oil had a party that started just 10 minutes before the NYMEX closed. At 2:20 someone suddenly needed oil so bad that they bid it up from $57.60 (just above the day's low) all the way up to $58.10 (the day's high) just 9 minutes later!

I won't get into it again here but we discussed how ridiculous this is in the previous post.

Gold made it back to the $580 mark and I am so glad I haven't been shorting miners as they positively exploded on this minor move as the dollar was rejected at the 200 DMA at $87.25.

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Soccer_F1 provided this excellent chart illustrating our total confusion about XOM's market defying run. I noticed something funny about ExxonMobil Corp. (NYSE:XOM) when checking out their balance sheet: How does a company earning $10B a quarter show no major changes on their balance sheet?

It looks like it's getting dumped into CapEx, which is kind of hard to pin down in many companies. Of course Exxon has many expenses, but they spent a big chunk of change ($31B) buying back 10% of the company's stock in the past 6 quarters vs. just $6B spent looking for oil! Since they sell $400B of it each year, you would think they want to find some more...

With all that buying back stock and $70 oil last quarter, you would think they could project better earnings than $1.61 -- just 20% over last year and less than last quarter's $1.64. Earnings come on October 26th and will be very interesting...

  • I was very surprised with the pricing of the XOM Jan $67.50 puts, just $2.65 which I will be moving into along with November $70 calls for .90, hoping, of course for a big drop between now and 11/17. If not, I can roll into the Jan $70s and, if XOM doesn't move $5 up or down between now and then -- I will never play XOM again!

On the whole, we would have been better off staying totally on the sidelines today as oil kept going up and up while some of us bought 2 rounds of oil puts as the prices just seemed irresistible.

  • The biggest mistake I made is thinking I was smarter than the Valero Rule as I kept trying to pick a top that never came. Valero Energy Corp. (NYSE:VLO) itself went straight up pretty much all day, as did Chevron Corp. (NYSE:CVX), ExxonMobil Corp. (XOM), Suncor Energy Inc. (NYSE:SU) and Oil Service HOLDRs ETF (NYSEARCA:OIH). Only United States Oil Fund ETF (NYSEARCA:USO) and crude itself gave us any reason to short and, according to The Rule, that is simply not reason enough!

On the bright side I did take calls in XOM and OIH to balance out the trade and, although they came off the table too early. My decision into the close was to cover with calls to avoid a gap-up tomorrow, but I'm not going to log the daytrades as they cancelled each other out for the most part and were a general waste of time.

As I said in the comments: "I do not advocate taking new Oct puts on this action unless you are as crazy as I am." Had we not had such a good month so far, I would never have made those plays and, as usual, deviating from well-established rules is never a good idea!

  • I did double down on the Sunoco Inc. (NYSE:SUN) $60 puts at .20, reducing that basis to .30 and a .10 loss so far.
  • Two other double-down plays were the XOM $67.50 puts at .85, reducing that basis to $1.35 and the Public Service Enterprise Group Inc. (NYSE:PEG) $60 puts for .80 and a $1.20 total basis.
  • OIH was in and out and doubled down with calls and puts all day, but lets' just say that we remain in the $125 puts at $2.75 (now $2.45).

Those are the only remaining October oil plays. Meta is away so I will have to post the full spreadsheet on the weekend.

  • Gannett Co. Inc. (NYSE:GCI) made a nice comeback today and I'm very glad I stuck it out!
  • We gave up on General Motors Corp. (NYSE:GM) $32.50 puts for .80 on the 11:30 rumor of a proxy fight, as I was unwilling to take a chance so close to expiration.
  • Sonic Corp. (NASDAQ:SONC) got a nice Cramer pump and should open in the money so thanks Jim!
  • Adding insult to injury, Yahoo! Inc. (NASDAQ:YHOO), one of my few calls, was one of the only tech stocks that went down today!

So, on the whole, not the best day. I'm setting tight stops on the calls despite the market strength, and I may decide to cash out tomorrow in order to re-assess for the weekend, as I'm finding the markets very difficult to predict up here.

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