Options Trader: Thursday Morning Ideas

by: Philip Davis

We've got it all today: OPEC meetings, great and terrible earnings, the Philly Fed (a real downer last month), natural gas inventories and, at the end of day -- Google earnings and the money supply!

If that's not enough to wake up the VIX then it is well and truly dead. I mentioned yesterday that the VIX is losing its value as an indicator, Fred Ruffy took the trouble to explain it in detail for us!

Asia took a little dip today as China's economy is finally slowing down a touch. We discussed the ridiculous propaganda that oil pumpers throw out about unlimited Chinese demand over a week ago and now it's in the Journal -- I must be slowing down!

One drag on Asia was bad news from Sony as they lowered guidance. Here's today's headline on Sony, and here's what I said on Tuesday (pat pat):

"Sony Corp. (NYSE:SNE) is finally recalling batteries in their own computers! The company says they are "considering whether is need to revise its earnings outlook." Gee, ya think? The stock rallied back $3 in the past week and is projected to earn $1B, but I see 4M Dell recalls, 2M Apple recalls and more than a million other miscellaneous companies times $100 (guessing) per battery = $700M + shipping. Obviously not all the batteries will be returned but every one that isn't is a potential fire lawsuit. I wonder what kind of batteries are in those little PSPs? The Nov $40 puts are .90."

Europe is down, not being quite sure what to make of last night's earnings reports, but Telefonaktiebolaget LM Ericsson ADR (NASDAQ:ERIC) posted a 17% profit gain, Novartis AG (NYSE:NVS) gained 13% on great sales, close to double expectations, and SAP AG (NYSE:SAP) hit 16% on the revenue side despite slightly disappointing sales.

These are really good numbers folks, despite market reactions!

Unfortunately it looks like both Ericsson and Motorola kicked Nokia's butt. As I predicted on Tuesday, I now regret not getting out of Nokia Corp. (NYSE:NOK) at .70 when I had the chance!

Also in Europe, Putin continues to crack down, turning his attention to those meddling foreign "do-gooders" by regulating them into submission.

Back home we will see if we get another shot at that pesky 12,000 mark, but it won't mean a thing if we can't close there.

Let's watch that S&P 1,360 mark for real danger, but 1,365 held very nicely yesterday. The NYSE is right between 8,700 (good) and 8,600 (bad) while the Nasdaq needs to hold 2,325 or it may fall to 2,300 like a coyote that runs off a cliff.

Rather than a roadrunner, it's the transports that are going "beep beep" and may put the whole market into a dive, much like they led the markets up in September when we often discussed the need for their leadership.

The SOX will be testing the 50 DMA at 450 today and SanDisk Corp. (SNDK) will either pull it out or put the nail in the coffin this evening. This is all additional fallout from GS's very oddly timed Intel downgrade.

Oil (and I have no idea what Stockcharts.com is tracking) is sitting at the year's low by any account, and OPEC is going to have to be on top of their game to prevent a slide to $55. As we near the end of the month, we have to wonder how many traders really want to take delivery of the oil they are stuck with and, if so, where are they going to put it?

At the NYMEX, both the December and January contracts lost more ($1.36) than the November contracts ($1.28) yesterday.

We have the gas inventory reports at 10:30, and analysts expect a fairly low 48Bcf build, still pushing us ever closer to capacity.

On the whole, earnings are so-far-so-good, but I'm not sure that's going to be good enough to sustain this rally without a real decline in oil and other commodity prices. We have laid the groundwork for a change in leadership that can sustain another leg up, but all legs cannot be lifted at the same time, and it is up to the commodities to take a back seat if we are to get healthy growth.

Housing is still a problem as mortgage delinquencies are on the rise and, as banks try to rein in problem loans, they will make it hard for others to buy homes. The last thing the housing industry needs right now is tougher lending standards!

The last thing the Republicans need is a new record being set in the polls with Congress in general getting just a 16% approval rating with 75% of the people actively disapproving! 50% of independent voters have swung to the Democrats side, while just 25% intend to vote Republican.

"Two-thirds of the electorate rates this year's Congress "below average" or "one of the worst" -- the poorest showing on that question since it was first asked in 1990."

Here's a cute little Republican promotion; really lets you know how they think they can still get to you (not much left). The democrats are still appealing to the animal lovers.


Citigroup Inc. (NYSE:C) was, as expected, uninspired in their earnings, down 23% from last year and slightly below expectations on flat revenues (not a good combo). "Our third quarter results were driven by strength in several businesses, including international revenues, up 11%," said Charles Prince, Chairman and Chief Executive of Citigroup. Well, then that means that U.S. revenues must really suck!

As I said way back on 9/22: "Domino #3 may be Citigroup! In-house hedge manager Tanya Beder resigned "after a string of poor monthly performances and mounting costs." C $50 puts are .80! Of course, this is another one I gave up on... (kick, kick)

Yesterday's selection Coca-Cola Co. (NYSE:KO) did not disappoint with a 14% rise in net on 7% more revenues (pat, pat).

McDonald's Corp. (NYSE:MCD) reported in-line this morning and we'll see if it's enough to hold their all-time high.

Pfizer Inc. (NYSE:PFE) reiterated their $2 projection for the year which should give us the push we need to bring some money back into the company.

Can Yahoo! Inc. (NASDAQ:YHOO) really be this dead? Nice job by Cramer with his bearish call and sticking with it despite the initial positive reaction to earnings. We lost our Nov $25s yesterday on a painful, stop-out at .90 (down 36%), but I'm kind of liking the Jan $25s for $1 since I'm already holding the pre-roll (or disaster, depending how you look at it) Jan $27.50s for .50 (down 60%). I'm going to take enough of these to make a double-down on the original wagers, but I am out for good at .80.

My thinking on Yahoo is either Google Inc. (NASDAQ:GOOG) has great earnings, explodes, and drags them up, or Google disappoints and people realize Yahoo isn't so bad. Then again Cramer may be right about this being a $12 stock...

After much thinking, I am personally staying away from Google's very overpriced options. The $420s are $11.70, that's a $12.50 premium for one day -- a little steep!

If you take a spread you have to get a $23 dollar (5%) move in the stock to make money -- simply not a smart play! I would rather pick a momentum play tomorrow than try to guess this one, and my leftover puts are too far out of the money to make use of.

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