Options Trader: Tuesday Wrapup

by: Philip Davis

Well I said it was going to be a tricky day and it was -- for the shorts!

After taking what, to me, was a surprising early dip, the indices perked back up around 12:30. As I said in comments when I came back at 1:20: "Holy Buying Opportunities Batman!"

In case new readers missed it, I talked about all this happening just before Halloween when I decided to flip into bull mode.

We got great entry positions on everything we wanted and didn't have to wait long to feel good about our purchases.

Did we hit all of our watch levels?

Dow 12,200 -- check. S&P 1,390 -- check. NYSE 8,873 -- check. Nasdaq 2,400 -- check. Russell 785 -- check. SOX 480 -- check. Transports 2,650 -- check.

Isn't this the part where someone says "prepare for liftoff"? We used the rocket example to assess the situation back on 10/27 so I won't rehash it here, but we are certainly in launch mode and now we have to see if we have enough fuel to reach escape velocity.

One part of the economy that may be succumbing to gravity (finally) is the energy sector. ExxonMobil Corp. (NYSE:XOM) could not get positive this morning despite a big open for oil, and it only attracted 17M shares worth of buyers for the 3rd time in 2 weeks.

Volume has been so low on XOM this past month that it has pulled the 3 month daily average below 22M for the first time in 6 months, when the stock traded at $60. Still, at $74 a share, 17M shares represent $1.25B a day.

We already know that XOM is buying about 10% of that themselves, at a cost of $100M per day, but they still need to pull $1.1B into that roach motel of theirs in order not to panic the ones that are already in and starting to wonder why the floor is so sticky.

Here's a funny chart I'll entitle "A Tale of Two Commodities."

Tale of Two Commodities 15 11 06

Oil itself had a rough day, so we won't pick on it. Crude tested $59.15 early but then drifted before ending the day very near the low at $58.28.

USO Chart 15 11 06

Here's an interesting 3 year comparison chart where the heavy-volume selling does not seem to bode well for crude at this level. Notice how far it's veered from the green projected path this week!

We'll see if we hold below our $58.39 target but that's a lot to ask on oil's first day below! Inventories should be very interesting tomorrow...

Gold barely budged at $627 as the dollar stood pat ahead of tomorrow's numbers.

On the whole, it was an amazing day, reversing a week of consolidation in one grand move. If we can hold this tomorrow, we may be in for the next leg up of the rally!


Of course we did well today, monkeys with dartboards were picking 80% winners, so I'm not proud, but I'll still take credit for these picks:

  • I thought Abercrombie & Fitch Co. (NYSE:ANF) was going well -- we got in at $3.70 on the Dec $75s and sold the Nov $75s for $2.50, but the stock is getting trashed in the after-hours because it "only" met estimates of 43% earnings growth! I will likely be buying out my caller first thing...
  • Dell Inc. (NASDAQ:DELL) Jan $27.50s came in at .55 and finished the day at .70 (up 27%).
  • I missed DR Horton Inc. (NYSE:DHI) but what a day! The Dec $25s finished at .90 from a .45 open.
  • On Halloween I asked the question: "What if you spin off an evil division and no one wants it? Halliburton Co. (NYSE:HAL) may be about to find out as they put investigation-pending KBR up for bids." Well before they even get the offer out, the redcoats are giving them problems!
  • Just for kicks I picked up the The Home Depot Inc. (NYSE:HD) Dec $35 puts for .15 as they were down .45 on the day.
  • We got half out of Lowe's Companies Inc. (NYSE:LOW) Dec $32.50s at .35 (up 25%) as the .28 basis was from a double-down we did not want to risk.
  • We debated whether or not it was time to short Las Vegas Sands Corp. (NYSE:LVS), but not with the market on fire like this!
  • I had to take the Oil Service HOLDRs ETF (NYSEARCA:OIH) Jan $135 puts for $5.70 and sell the Dec $135 puts for $3.70 as there are too many ways to win.
  • We picked up the NASDAQ 100 Trust Shares ETF (QQQQ) Dec $44s which finished up .15 at .85.
  • I may have been a little greedy looking for low $40s on my SanDisk Corp. (SNDK) call, so let's keep an eye on them as they retest $48.
  • Tiffany & Co. (NYSE:TIF) Jan $35s didn't move much but finished at $2.60 (up 18%).
  • TiVo Inc. (NASDAQ:TIVO) got away from us with a 7% gain!
  • Ultra Clean Holdings Inc. (NASDAQ:UCTT) was suggested by MJ and it's a really great company so we're going to keep an eye on it if the SOX stay strong.
  • Williams-Sonoma Inc. (NYSE:WSM) Dec $35s zoomed up to $1.25 (up 79%) after a big dip.
  • That poor guy with the 94,000 Energy Select Sector SPDR ETF (NYSEARCA:XLE) $53 puts that were bought for $2 still has them at .02! Lesson for us -- don't follow the money!


I apologize to Ann Coulter, who I find very amusing, but this is one funny quiz! I got 3 wrong...

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