Options Trader: Weekly Wrapup

by: Philip Davis

Well, that was a lot of work to gain 200 points wasn't it?

That's right, we started this week on Monday morning at 11,985 so all that whining and moaning about the markets was for nothing! The markets are fine; we had a pullback which may already be over.

The Democrats failed to bring about the predicted economic apocalypse as once again this great democracy can have a revolution every decade or so and treat it like an ordinary changing of the guard.

Sure the Dems will send money flying out of some sectors (Pharma, Oil, Defense) but it will boost others (Biotech, Travel, Retail) so it's just a bit of a forced sector rotation more than a problem in the markets.
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The Dow pulled it out at the last minute with a sudden surge over the critical 12,100 mark to finish right about at Monday's high.

DJIA Chart 11 11 06

The Dow was pulled down today by Alcoa Inc. (NYSE:AA) (down 1.7%), Walt Disney Company (NYSE:DIS) (down 3.5%), AT&T Inc. (NYSE:T) (don 1%) and Verizon Communications Inc. (NYSE:VZ) (down 1.4%). The standout performance came from American International Group Inc. (NYSE:AIG) (2.4%) with Boeing Co. (NYSE:BA) (as usual), Caterpillar Inc. (NYSE:CAT), Honeywell International Inc. (NYSE:HON), Hewlett-Packard Co. (NYSE:HPQ), Intel Corp. (NASDAQ:INTC) and JPMorgan & Chase Co. (NYSE:JPM) providing backup.

I have come to the conclusion that we shouldn't be shorting any gaming stocks as Nevada's Harry Reid will be the new Senate majority leader -- I missed that one but it would have been a smart play this week!

The S&P was slightly better behaved for the week, never really giving back Monday's gains and finishing at 1,381.

S&P Chart 11 11 06

The NYSE also had a very good week with 2 short bounces off the 8.800 level but never any real danger.

NYSE Chart 11 11 06

The Nasdaq was the standout of the week with a 2% gain and a 2,390 finish, the highest weekly close since Feb 2001!

Nasdaq Chart 11 11 06

We were watching the Russell, which ran up to 769, and the SOX which managed a 1% gain for the day, as well as the transports, which shot up 2% today on a sharp rebound off the 200 DMA we've been watching all week.

Tranq Chart 11 11 06

Oil dove back down $1.57 to finish the week at $59.59 but you wouldn't know it from XOM, who skated along at their all-time high. My current thinking on this is that the E&P companies are suffering first as the analysts have decided the Dems will cut the tax breaks, which will increase the value of reserves.

Oil vs XOM Chart 11 11 06

This is all very logical sounding until one realizes that the Dems are cutting tax breaks because the integrated majors weren't using the money to find oil anyway and that their reserves are as overvalued as builders' land-banks were in 2005 and will be subject to the same write-down cycle the builders have been in for the past year.

That ride was never going to end either because the builders had already built on all the "easy land" and now they had to work hard to "break new ground" and there was an increasing consumer demand for housing (especially in China), no one had come up with any viable alternatives to land and Americans were not willing to conserve land by living on smaller lots. Sound familiar?

Although the oil plays are still deep in the red, it's hard for me to feel that worried about them with crude just .03 above the target I set for it back in September after having topped out a nickel high of the top I predicted using the same 5% rule.

Gold also pulled back $7 on the day but had a strong week, finishing just under my $630 resistance mark.

The dollar is just having an awful month and today was no exception but a bounce out of the 84 zone saved sentiment this morning.

USDollar Chart 11 11 06


Returns for the week were skewed as I only took the good ones off the table, including a no-cost Sirius Satellite Radio Inc. (NASDAQ:SIRI) $4 call that was essentially the profits from the stock we sold which gained 600%.

The 13 closed positions had an average gain of 103% with an average hold of 9 days. Without the Sirius call, the gains came out to a more realistic 64%.

Of course the flipside to that is that still have those dreadful oil plays in the open folder and, so far, rolling them into December is only serving to prolong the agony!

27 remaining open positions have been there for an average of 16 days with a 15% average loss so far.

Since it's just those 13 options plus a few stocks, we may as well recap them all:

Anadarko Petroleum Corp. (NYSE:APC) Nov $50s were held a day too long and I was lucky to get out up a dime at .50.

American Express Company (NYSE:AXP) Nov $57.50s stopped out at $1.70 (up 100%) on Wednesday's pullback and here's a case of the rules working well. The $60s came off at .20 (down .15), and here's a case of how my roll accounting system needs to be modified as that counted as a 43% loss.

Berry Petroleum Co. (BRY) $30 puts were a double for about 5 minutes on Wednesday and before I could hit the sell button on half I was selling them all for .55 (up a dime).

Berry Petroleum Chart 11 11 06

Boston Properties Inc. (NYSE:BXP) Jan $95 puts finally wore me out of that 2 month old position and I took $2.40 (up 30%) and ran.

Diamonds Trust Series 1 ETF (NYSEARCA:DIA) Mar $121s were timed well and finished at $4.20 (up 24%) but I would have done so much better with closer calls.

Garmin Ltd. (NASDAQ:GRMN) Jan $47.50s had to go for $2.55 (up 11%), as it was way too choppy to hold. I really like this stock but not its behavior.

GRMN Chart 11 11 06

I knew at the time we stopped out that Joy Global Inc. (JOYG) was acting strangely. I said "very strange with miners all doing well" but rules are rules and we took $40.24 (up 8%) and ran. Today it shot up to $40.93. 8-(

Joy Global Chart 11 11 06

LLY Jan $60s had a great first two days but fell off a cliff and stopped us out at .40 (down a nickel). Lucky we took the Merck & Co. Inc. (NYSE:MRK) puts!

Eli Lilly Chart 11 11 06

Merck & Co. Inc. (MRK) Dec $42.50 puts stopped us out today at $1.05 but that's 91% so no complaints!

Cambridge Display Technology Inc. (NASDAQ:OLED) came back down and hit our buy target of $5.75 right on the button! Earnings (or lack thereof) were off as expected, but I think we need to keep a tight stop on this one until it settles down after an 18% drop on the day!

Cambridge Display Chart 11 11 06

Perrigo Co. (NASDAQ:PRGO) was a great news play in comments as we caught that product recall right at the beginning of the drop. The Mar $17.50s went far enough at $1.60 (up 39%) for a news trade.

Perrigo Chart 11 11 06

NASDAQ 100 Trust Shares ETF (QQQQ) $42s went out Tuesday at $1.05 (up 75%), which was the proper call on a close expiration, despite the additional gains.

QQQQ Chart 11 11 06

Quest Software Inc. (NASDAQ:QSFT) Nov $15s were a fun earnings play that went very well! We took them off the table at .90 (up 500%) on the initial spike and, even though the stock is higher now -- the calls are a dime lower. Always sell into the initial excitement! We kept the April $15s though...

As I mentioned, we took SIRI off the table at $4.02 (up .30) and transferred .20 to the .25 Dec $4 for a .05 basis. This is the way I am going to do rolls from now on as the old way made every one look like a loser so I'm trying to properly account for the money. We stopped out of the Dec $4s on today's pullback at .35 (up 600%) which is sad that I was too greedy to take .50 (or at least half off the table) yesterday.

Total S.A. (NYSE:TOT) was yet another sad oil play with yet another sad 25% loss on the Nov $70 puts. The earnings were terrible, oil is going lower, costs are going up -- it is so frustrating!!!

I love it when a plan comes together! After much heartache and a very scary ride I got out of half of my Yahoo! Inc. (NASDAQ:YHOO) Jan $27.50s that we've held since 9/21 for $1.70, a 100% profit from the doubled down, sold calls against, thought it was going to be a disaster nightmare of ownership! I left the Jan '08 $25s alone for now as they are up nicely at $6.10 (up 27%).

The spreadsheet will be posted up over the weekend at: http://www.clinamengroup.com/philstocks/

Have a great weekend,

- Phil