Options Trader: Wednesday Wrapup

by: Philip Davis

What was that? Are things starting to matter? We certainly can't afford that attitude, as there are just so many things to worry about! Today's worries seemed to focus on the weak ISM number that confirmed Friday's weak GDP report. The 51.2 reading gave us the slowest pace of growth since June 2003.

Never mind that between March 1, 2003 and Jan 2004 the Dow gained 3,000 points -- that kind of logic certainly doesn't matter when people are panicking! Auto sales picked up sharply, and Mastercard Inc. (NYSE:MA) announced a 20% increase in consumer spending in the past quarter, both great signs that were ignored by a tired Mrs. Jones.

There was a general sell-off among the Dow components, but nothing alarming outside of Intel Corp.'s (NASDAQ:INTC) 1.5% drop. JPMorgan & Chase Co. (NYSE:JPM) lost a point because they are buying hedge funds, United Technologies Corp. (NYSE:UTX) dragged the Dow down as rumor spread that they lost a contract and the heavily weighted company lost $1.5B in market cap on heavy selling.

Funny thing, in the after hours it was revealed they still might get that contract so the stock is back where it started again! Boeing Co. (NYSE:BA), who is partnered with United Technologies Corp. (UTX) on the bid, sold off as well but held positive for the day.

The only other significant pullback was from AT&T Inc. (NYSE:T), who gave up 1.4 of the 30% they've gained since July as Time Warner Inc. (NYSE:TWX) announces they will be expanding their VOIP service.

This is the problem when your index relies on just 30 companies, a problem with one or two can drag down the whole market!

Unfortunately the much broader S&P had a huge sell-off today, dropping all the way down to 1,367 and showing 1,370 no respect at all. The NYSE was more of a trooper, holding the 8,700 line right at the end of trading.

The Nasdaq also gave up a lot of ground (1.4%) today, closing at 2,334, dragged down by a very poor SOX group (down 2%), while the transports dropped a point but stopped right on the 200 DMA at 2,565.

I think we need good news tomorrow, as no news is not going to do it!

After much hemming and hawing and pumping and dumping oil did indeed finish right back where it started with an official close of $58.71, just .15 above our recent 5% level. There is no indication of strength when a chart bounces off (less than 50%) or rests against the 5% mark. Remember this target was set way back in September so give it a few days to play out, but the lack of a bounce is very telling!

We had a great time with our oil puts and, while we could have made money both ways today, the signal was much clearer on the way down than on the way up.

Gold ran up $12 to $619 and now rests on a very critical resistance level at $620. The dollar rests on a different resistance as it retested the 85 bounce zone, retracing all of October's gains.

Have you seen this ad? I am embarrassed to be part of a population that people think can be swayed by this sort of crap! If my party put out something like this I would certainly complain, and if I were a responsible candidate I would disassociate myself from it, but we'll see what actually happens...

On the whole it was not a terrible day -- back in June or July the Dow would routinely rise and fall 100 points and we wouldn't even comment on it. We have now become spoiled by a stretch that began on July 17th of 73 sessions (only 26 of which were negative) where the Dow gained 1,484 points.

This 4-day sell-off is the worst 5-day period since August 7th, when the Dow "peaked" at 11,344 (up 560 points in 3 weeks) and retraced all the way to 11,042 on the 11th. The catalyst for that drop was a Fed meeting on the 8th that threw water on the party by not raising rates! I commented at the time that it was a mistake.

The big event at the time was the 21 people arrested in England for plotting to blow up a plane with liquid explosives (ah how soon we forget). That only took the markets down 300 points. A week later we were over 11,400 and back to planning our next plane trip.

So, just as my advice then was let's wait until we test 11,000, my advice now is let's wait until we test 12,000 (anyone want to guess my advice at 13,000?) -- Mrs. Jones deserves a little rest every 1,000 points doesn't she?


  • Sony Corp. (NYSE:SNE) took all day to drop, which was great if you weren't in the $40 puts yet -- we've been in them since 10/18 and, even with the drawdown last week, our basis is still .75 -- .20 in the red!
  • Mastercard Inc. (MA) ran up 15% today so congrats to Citigroup Inc. (NYSE:C) and Goldman Sachs Group Inc. (NYSE:GS) who took them public in May at $45, left $5.5B in market cap on the table, and still, as of October 9th, had no idea what this company was worth (or were they just lying to shake out some shares before earnings?).
  • Baidu.com Inc. (NASDAQ:BIDU) sold off a bit for no good reason so remind me to look for a bottom there!
  • You know there's something wrong with gold when the metal gains $12 and Newmont Mining Corp. (NYSE:NEM) can't hold a 2% gain for the day. Like all the miners, earnings were good but demand is off, but Pierre says he will do whatever it takes to jack gold back up to $700 next year.
  • Thank goodness for OPEC, Pierre and Chesapeake Energy Corp.'s (NYSE:CHK) Aubrey (who cut the flow of gas to "stabilize" prices last month) or we would have some sort of free market to contend with!
  • Garmin Ltd. (NASDAQ:GRMN) was too ugly to buy today, but remind me to watch it in case my post-it falls off the monitor!
  • CVS Corp. (NYSE:CVS) got just what they deserved for biting off more than they can chew, but a 7% drop is nothing -- just ask Boston Scientific Corp. (NYSE:BSX), who "won" the battle for Guidant in January.
  • We had to say goodbye to our Alcoa Inc. (NYSE:AA) positions as they stopped us out in the morning -- hopefully we will get a chance to go back in. The $30s lost a nickel at .30 and the $27.50s finished at $1.40 (up 133%).
  • We took a lot of positions around inventory and stopped out of our November oil puts just after 1:00 as crude was pumped up on the close of Brent trading.
  • ExxonMobil Corp. (NYSE:XOM) $70 puts were taken off the table at .85 (up 20%) as I got nervous early, but we held the pre-roll $67.50 puts which are now free and finished the day at .25. The December $67.50s are back to .70.
  • Devon Energy Corp. (NYSE:DVN) was exited at $1.10 (up 30% on a 2 hour trade).
  • Chevron Corp. (NYSE:CVX) $65 puts were entered and exited at .60.
  • ConocoPhillips (NYSE:COP) $60 puts stopped out at $1.55 (up 20%).
  • Royal Dutch Shell (NYSE:RDS.A) Dec $70 puts came in at $1.45, now $2.10 (up 45%)
  • Ultra Petroleum Corp. (UPL) Dec $50 puts came in this morning at $1.90, now $2.30 (up 20%).
  • I'm eating Oceaneering International Inc. (NYSE:OII) $35 puts for .20 (down 33%) at the moment.

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