Options Trader: Tuesday Wrapup

by: Philip Davis

Ah, Mrs. Jones is such a tease! She entices the shorts to jump in with weak data reports and slowing consumer spending, only to spurn them each afternoon!

Today she came down soft and slow, dipping enticingly below the 12,030 mark around 1, before getting all giddy and staging a 70-point rally at 2:30... So unpredictable! And the bears are so anxious to get in! Every day since Thursday's top, they pile on with each dip, yet all they have done it taken 80 points off the top in 3 days. Since August 14th the market has gone up from 11,100 to 12,200 (10%) after having paused ever so briefly at 5% on 9/28 where it pulled back 170 points in 3 days before making another 600 point run. We talked about what a real pullback could look like earlier in the week and this is certainly not it!

It may not be over at all, and I'm not feeling very bearish yet. The S&P didn't look too negative with a penny gain today! You may laugh, but a penny saved back in 1776 (when Ben Franklin suggested it) would have compounded to $1,000 today in a passbook account. Had we added just one more penny a day we would have $7M today! So start making excuses now for your great, great, great, great, great, great grandchildren about how you were too cheap to put a penny a day aside for them! Anyway so that's a 2-point gain in 2 days from the S&P, still just under 1,380.

The NYSE was even surer of itself with an 8-point gain, while the Nasdaq added 3 points with a quick retest of 2,375. The SOX held firm with a one point gain, but the transports acted like a groundhog that had seen it's shadow when they fell back 40 points as oil poked back over $58. Oil gained .37 in one of the most shameless fake pumps I have ever seen perpetrated on the NYMEX floor! After drifting down all day to just under my $57.14 target price (our final 5% level from 9/25), oil shot up one dollar in just 30 minutes of frenzied buying into the close. They didn't want it at $57.05 at 11:45, they didn't want it at $57.05 at 12:15, they didn't seem to want is at $57.20 at 1:30, but at 2-2:30 -- they had to have every drop of oil in the house! I've written about the manipulation of the NYMEX and what can be done about it, but until we get a change of leadership, you can expect this to be done to you at will!

Fun Fact: "From July through September, ExxonMobil made over $10 billion, Shell earned $9 billion, B.P., $6.5 billion, and Conoco-Phillips and Chevron, more than $5 billion each -- $35 billion, or $115 for every man, woman and child in the United States." That works out to just over $2,000 per family per year, and that's just the big 5!

Gold put in a lackluster performance against a weak dollar today, but managed to stop at the 200 DMA at $604. The dollar lost a quarter point today, accentuating oil and gold's overall weakness. What spooked the markets today was a weaker than expected Chicago PMI, but still showing expansion, as well as a soft Consumer Confidence number at 105.4, down from 105.9 in September. Hey economists -- Oil was down $20 in 30 days in September, there were 12 teams in contention for the World Series, everybody had a shot at winning the Super Bowl, the kids were heading back to school and, oh year, there weren't 45,000 commercials on television telling you how messed up the country really is, apparently no matter which party wins the election! Of course people are less confident this month...

As usual, drunken bowlers are smarter than economists, but until they give my team a shot at running the OMB, we'll just keep slugging them back and laughing at the "statistics."

=====================================

  • Lowe's Companies Inc. (NYSE:LOW) has gone nowhere this week with the $32.50s still a dime and the December $32.50s still at .40.
  • Yahoo! Inc. (NASDAQ:YHOO) on the other hand is having a great week and our Jan $27.50s are already $1.35 (up 50%) and the Jan '08 $25s at $5.40 (up 15%). Our fun play on the current $27.50s is already up 75% at .35!
  • We got out of our XLE $53 puts for .60 (up 75%) and our $55 puts for $1.40 (up 55%) as we got a very clear sell signal from our Valero Group just after lunch (along with a bounce off my bottom call at $57.14).
  • We took the short position on Tesoro Corp. (NYSE:TSO) at $63.50 but managed to collect $4 on the $65 put.
  • The Chevron Corp. (NYSE:CVX) $65 puts were in and out for just a .20 profit (25%).
  • We picked up those ExxonMobil Corp. (NYSE:XOM) Dec $67.50 puts for .70, but they finished the day at .65 where I took some more! Also at the day's end we took some Nov $70 puts for a .80 average.
  • The Royal Dutch Shell (NYSE:RDS.A) puts opened too high to play.
  • Core Laboratories N.V. (NYSE:CLB) opened too high to play, need to watch those!
  • Halliburton Co. (NYSE:HAL) $32.50 puts came in at just $1.20 but got stopped out for just $1.40 (up 15%) on a sudden dip.
  • Oceaneering International Inc. (NYSE:OII) never triggered as it didn't come down to our target until after we got the sell signal from the VRule.
  • The McDermott International (NYSE:MDR) $43.38 puts came in at $1.50 and dropped to $1.20 (down 20%).
  • Ultra Petroleum Corp. (UPL) Dec $50 puts came in at $1.80 and were dumped at $2.20 (up 22%).
  • Alcoa Inc. (NYSE:AA) shot up but the markets didn't give us a signal to make a new buy. Our existing $27.50s are up to $1.50 (up 150%) while the $30s are almost even at .30 (down a nickel).

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