Options Trader: Thursday Wrapup

by: Philip Davis

The Dow finally broke 12,000! 13 of the 15 components were down, but we got our 8 points and that's all that does matter!!!

We got leadership from General Motors Corp. (NYSE:GM), Hewlett-Packard Co. (NYSE:HPQ) (who made it back to yesterday's open), Coca-Cola Co. (NYSE:KO) (pat, pat), 3M Company (NYSE:MMM), Altria Group Inc. (NYSE:MO), AT&T Inc. (NYSE:T), Verizon Communications Inc. (NYSE:VZ) and ExxonMobil Corp. (NYSE:XOM) as the group that gained more than half a point.

The S&P has too many companies to pick apart, but they gained a whole point! That's .07%!!! They NYSE sure showed them by jumping .43%, and the Nasdaq took a wrong turn in Albuquerque but managed to rally it's way up .16%. Stellar!!!

Faced with such obvious buying conviction, we can only look upwards where we would not see the SOX, which finished just below 450 but we would finally find the transports, which came to rest exactly at 2,600.

None of these things matter because GOOGLE HAD PHENOMENAL EARNINGS!

So amazing that I think Cramer's $500 target may be in jeopardy to the upside, either by the end of the year or perhaps after next quarter. This is just what the Nasdaq needed to kick it back in gear, so let's hope it sticks tomorrow.

If you have any remaining Google calls from our picks on September 11th, September 19th or even today's comment spread of the Nov $440s for $13 and the Nov $410 puts for $12, then please don't forget our adage: Always sell into the initial excitement!

You don't have to sell it all, but take half off and keep an eye on the rest. Sure it may go up more, but it will have to go up a heck of a lot more to catch up to that inflated premium you get as your stock goes up like a rocket.

Speaking of rockets, OPEC had their emergency meeting today and decided to cut 1.2M barrels of oil from their daily delivery schedule (because they don't produce it, it's just sitting there in the ground). Reductions are to begin November 1st, and another meeting will be held in December to see if anyone takes them seriously.

Zman makes a good point with this chart, which shows us what is considered an "emergency" price problem for OPEC:

OPEC Yearly Oil Price

Now, I am a big advocate of free trade but I'm also a big fan of a level playing field. For many years we've built an oil-based manufacturing empire based on a tacit agreement with OPEC that they would maintain "price stability" -- not price gouging!

Perhaps the time is right for the Non-OPEC nations, the ones who make stuff, to start putting "surcharges" on that stuff when it is heading to OPEC nations.

OPEC nations produce over $600B worth of oil a year, which only cost $200B in 2003. Before they got so rich on that extra $400B a year we send them, they used to buy $200B in imported goods and services. Since 2003, they have decided to "stabilize" the price of oil at $55 a barrel (up 85%), while our goods and services have only gone up 12% in price.

All us non-OPEC club members need to do is "stabilize" our export pricing up by 70%, perhaps with a "fuel surcharge" as used by many truckers, to even things out nicely!

With all the hoopla today, oil only made it to $58.50, not a level to be proud of. Today's .51% gain in oil came against a .73% drop in the U.S. dollar so oil actually got cheaper today in real money terms!

As I said in comments: My OPEC headline is, "Saudi minister says there is way too much oil -- Must cut now and again in December to avoid meltdown!"

Gold Continuous Contract 20 10 06Gold also put up nice 2% gain and popped back up to $602.50 as we move into the December contract. You would think it's better late than never but the continuous contract graph was not impressed:

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  • Coca-Cola Co. (KO) was the third best Dow mover of the day with a 2% gain and our Nov $45s are just out of the money at .75, but I took mine off the table at .65 (up 86%) as the markets looked weak.
  • Merck & Co. Inc. (NYSE:MRK) Nov $45s came off at $1 (up 33%) on a pullback
  • Pfizer Inc. (NYSE:PFE) stopped us out at $1 (up 33%) as well. Now you see why I got nervous about Coke!
  • I took a double-down on Allstate Corp. (NYSE:ALL) Nov $62.50 at .75 to reduce basis to $1.28, a 40% loss so far.

There was lots of other activity but we have all weekend to get to an update, and it's still earnings season!

SanDisk Corp. (SNDK) was the anti-Google this evening with a 13% after-hours drop. Profits are down 4%, but the average selling price was off a whopping 60% as the sector price wars take their toll.

Broadcom Corp. (BRCM) said numbers were solid (sales up 30%) but gave no specifics as options shenanigans claim another victim.

Rambus Inc. (NASDAQ:RMBS) expects $200M in option charges, not good for a company that earned $46M, which was a miss anyway.

Xilinx Inc. (NASDAQ:XLNX) had great numbers and shot up 8% AH. We did very well with this company in April and again in August, but I was concerned this season at $24 (kick, kick).

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