Options Trader: Wednesday Wrapup

by: Philip Davis

Another day another record for the Dow -- ho hum... SOX down 3% -- didn't matter! Transports down 1.5% -- does not matter! Oil sector off 2% -- doesn't matter! Core CPI at a decade record 2.9% -- It Just Doesn't Matter!

Nope, none of it mattered as the Dow (we'll have to start calling him Mr. Jones soon!) zoomed up to 12,050 before it realized it had left the other indices behind and settled down at 11,992, setting an intra-day and end-of-day record.

Once again Hewlett-Packard Co. (NYSE:HPQ) led the way, giving us a clear early top, an 11 am bottom, and let us know the day was a fizzle when it was rejected from even at 12:50. Just to be clear, these tracking stocks don't last forever but, while they work -- they work!

Aside from International Business Machines Corp.'s (NYSE:IBM) stellar 3% performance, Johnson & Johnson (NYSE:JNJ) also ran up 3%. The JNJ Oct $65s were one of my few losing picks in the week of September 15th. That's right, I got fed up and dumped them (kick, kick).

Oh well, can't win them all can we?

The S&P barely won this one but held on to finish up 0.14% at 1,365 with just a brief visit in the red today. The NYSE outperformed the S&P by 0.06% and finished at 8.663 while the Nasdaq actually dropped (are they allowed to do that?) and finished at 2,337.

As I mentioned, SOX and Transports were huge disappointments that didn't matter to the Dow and we got a real mixed bag of earnings tonight so we will see what matters tomorrow.

Oil took a little spill and ended up back at $57.67, lower than the spike of October 4th and lower than any price this year. As Zman points out in his blog, the growing disparity between the actual price of oil and the sector is unlikely to continue.

I took a chance and called a top on oil at 11:41 in comments by removing my November oil covers and transferring the cash to my existing puts so I could set a realistic stop (ExxonMobil Corp. (NYSE:XOM) $70.25) and walk away. Well that couldn't have worked out more perfectly!

While I admit the drawdown in distillates and gasoline threw me for a loop at first, I decided that all it meant was that inventories were overflowing as refinery utilization dropped 3% (5M barrels) and 5M additional barrels of crude piled up at the docks. This is coming with BP PLC (NYSE:BP) down for 3 days in Alaska, and Norway cutting off 3 platforms, and Chavez cutting back last week as well.

I yawn in OPECs general direction with their "production cuts" tomorrow or, as a very clever reader suggested we call them last week "spare production capacity increases!"

Gold blew it today! I warned them but they didn't punch through, now they will have some real trouble as the 50 DMA comes crashing through the 200 DMA on its way to the low $500s!

All in all another fabulous day for the energizer rally as we consolidate for our next big move -- I only hope it's up!

Speaking of records -- October may set a more dubious record as it surges forward to become one of the deadliest months yet for U.S. forces in Iraq. 53 of our people have already died in the first half of the month as we close in on the 3,000 mark -- I know Bush has his rally cap on as he tells voters around the country that it doesn't matter but I remember chills going down my spine when they marched 1,000 coffins through the streets of New York, to signify the death toll during the Republican Convention just 2 years ago!


We got our .35 entry on Nokia Corp. (NYSE:NOK) $20s today, seems kind of silly to have kept buying them on and off for 2 months when they end up right where we started, but since we cashed out at .70 three different times, we really can't complain! Hopefully we get a nice little bonus tomorrow despite Motorola Inc.'s (MOT) scary report.

Pfizer Inc. (NYSE:PFE) had a lovely first day, and the Nov $27.50s jumped up to $1.05 (up 40%).

Our oil plays went exceedingly well for a change as we picked up the ExxonMobil Corp. (XOM) $70 puts in comments for .70, sold them at .70 again shortly after, and then jumped back in for .50, took half off the table for $1 -- to get a free ride on the rest.

We took another round of Valero Energy Corp. (NYSE:VLO) $52.50 puts, were in at .50 and out at .75, all before inventory (why risk it?), while our more patient plays worked out well too:

  • ConocoPhillips (NYSE:COP) $60 puts for .25, stopped out at .35
  • Chevron Corp. (NYSE:CVX) $65 puts for .50, stopped out at .75
  • Valero Energy Corp. (VLO) $52.50 puts for .65 and we held these with a stop back at .65.
  • Occidental Petroleum Corp. (NYSE:OXY) Nov $45 puts stopped out at $1.20 average (up a nickel and glad to get it!).
Apple Computer Inc. (NASDAQ:AAPL) was the star of the late night show with crushing numbers and a 5% gain in AH trading. I could not be more proud of my favorite company!

eBay Inc. (NASDAQ:EBAY) did very well too and beat by 2 cents, which was good enough to add 2.5% in late trading. Guidance was in-line with revenue growth projected a little light, but still a strong showing, and, as I said before, so much potential!

Advanced Micro Devices Inc. (NYSE:AMD) also had a nice beat but scared people with what looks like a margin squeeze and traded down after the close.

Ryland Group Inc. (NYSE:RYL) was a big surprise with better than expected earnings and gained 5% in late trading.

Alliance Data (NYSE:ADS) had a surprisingly good quarter processing credit cards with a 20% beat.

Citrix Systems Inc. (NASDAQ:CTXS) was better than expected but not good enough for a P/E over 30, a situation that will be remedied tomorrow!

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