Options Trader: Thursday Wrapup

by: Philip Davis

Wow! Another huge day.

Dow 12,305 -- this is almost sub-orbital. The S&P was slightly more subdued at 1,399 and that extra point might be a tough one.

The NYSE held firm at 8,894 -- a little disturbing but understandable in a commodity sell-off. The Nasdaq also hit a wall at 2,449 but, on the bright side, we won't have a hard time gauging direction tomorrow!

SPX Chart 17 11 06 COMPQ Chart 17 11 06

The Russell also flatlined but held 790 and the SOX closed right in the middle at 485. Only the transports joined the Dow in their certainty that $56 oil was "a good thing."

Oil was indeed a good thing today with a well lubricated slide all the way down to $56.26 blowing through my target for the week. Was this a genuine sell-off or did it relate to the IPO of the NYMEX tomorrow as the easily manipulated market may have been taken down to free up some of the oversubscribed shares?

No matter what it was, it certainly panicked the roaches! At 10:40, while we waited for a delayed gas inventory report, I mentioned that we got a good, clear short signal from our Valero Group -- the first one since last week!

As I predicted, the return of volume heralded a big sell-off in Exxon. In comments, I calculated that 400M shares of XOM changed hands above $70 since 10/15. If 22M shares a day are trying to get out before they go red, these guys could be living in a 20-story Tower of Pain!

Even if there is more selling tomorrow, it may be just the expiration of the December contract coupled with a lack of cheap storage that is driving the sell-off. Tune in Monday to see where the week will take us!

Don't blame the dollar, it moved up .18% -- not enough to move crude or gold which closed at $625.


Earnings were a mixed bag today but the market really perked up as commodities sold off, but the irrational exuberance seems to be over as poor performances are not being given a free pass.

  • Abercrombie & Fitch Co. (NYSE:ANF) Dec 75s jumped back to $74 after lunch but then pulled back to stop us out at $2.05 (up 41%).
  • We need those huge profits because BEA Systems Inc. (BEAS) is a wipe-out so far!
  • Costco Wholesale Corp. (NASDAQ:COST) Dec $55s came in at .75 on a morning sell-off and finished up 25% at $1.
  • I'm glad we took Cypress Semiconductor Corp. (NASDAQ:CY) and not SunPower Corp. (NASDAQ:SPWR), who dropped 2% on news they were buying PowerLight in a stock deal. CY took it pretty well and our Jan $17.50s held .95.
  • We hit the dead bottom on Dell Inc. (NASDAQ:DELL) and picked up the Dec $25s for .90 as it just wasn't going lower than $24.50. Hewlett-Packard Co. (NYSE:HPQ) had great earnings but got little out of it in the after-hours with weak guidance.
  • Holy cow! Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) jumped up 6% despite so-so earnings but it seems everyone is as excited about the McDonald's Corp. (NYSE:MCD) deal as I am!
  • In anticipation of a big IPO for the NYMEX, we picked up the IntercontinentalExchange Inc. (NYSE:ICE) Dec $85s for $12.30 in the hopes that a rising tide would lift all exchanges.
  • We took the Starbucks Corp. (NASDAQ:SBUX) Dec $40s off the table at $1.55 as a 55% gain was not worth risking into earnings (and they missed!). I feel terrible about my caller, who bought the 37.50s from me for $1.50 just 2 days ago, but it's good to be on the other side of these once in a while!
  • Someone was trying to buy thousands of SanDisk Corp. (SNDK) Apr $42.50s that we wanted so we aborted the trade.
  • Tiffany & Co. (NYSE:TIF) had a good day with the Jan $35s running up to $3.20 (up 35%).
  • Williams-Sonoma Inc. (NYSE:WSM) got dragged down by the Pottery Barn and I dumped my remaining calls at .35 (down 50%) which eats slightly into yesterday's bulk sale at 107%.

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