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What a way to end the week! Dow and S&P records going into the weekend -- now that's investor confidence! Minor pullbacks from the other indices but all well within our comfort levels, including the transports who came within 5 points of my target of 2,675 (despite the decline in oil) but closed at a comfortable 2,691.

You've got to love it when every single index we track hits our predictions on the nose!

It's been a good week for predictions in general -- in comments at 9:23 I recommended a day trade on the Dow: "I'm going to be checking out the DIA $122 and $123 calls if the market takes a nice dip. I'm looking for a bounce at $122.70."

Here's the chart, bottoming at $122.67 at 9:39! Needless to say that trade went very well with the DIA $122s coming in at .75 and finishing at $1.20 (up 60%) and the $123s coming in at .10 and giving us a quarter at the close (up 150%).

DIA Chart 18 11 06

But that was not our best trade of the day! That hardly rates a mention compared to the ICE trades!

We had a great session Thursday deciding how to take advantage of the Nymex Holdings Inc. (NMX) IPO and we decided that the IntercontinentalExchange Inc. (NYSE:ICE) would be a beneficiary, and we picked up the Dec $85s for $12.30. They finished the day at $17 (up 38%) but I lost a dollar going out and in on an early dip so I took half off the table at $20 (up 63%).

ICE Chart 18 11 06

At 10:01 I decided to make a $1.50 offer on the $95s and by 10:04 it got away from me but filled at $1.20 just 10 minutes later. We exited that one at 11:30 for $9 -- 650% in one hour! That's a pretty good annual rate of return folks! It also turned out to be the EXACT top of the day so I'm very, very proud of myself (pat, pat).

Congrats to everyone who played along at home -- now that the earnings nonsense is over, we can concentrate on situational trades like this on the pro site.

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On the whole it was in incredible week, we even started making some money on oil puts again!

Relentless doubling down strained my position limit and left me unable to add positions to take advantage of Thursday's drop, but I was happy (after Wednesday's final DD opportunity) to get half out of many positions and bring my oil puts down to a more manageable 12% position.

We closed 30 positions this week for 72% with an average hold time of 9 days. Our remaining 35 open positions carry a 15% profit with an average hold of 16 days. This is a fantastic turn-around from an open portfolio that carried a 15% loss last weekend!

Obviously we owe a lot of that improvement to the timely turnaround in the oil patch, that gave us a chance to pull half (or all, depending on your mindset) out of a lot of those doubled up positions with a small profit after all that suffering.

I was also able to finally cash out those two Google Inc. (NASDAQ:GOOG) puts that were a total loss as I rolled that loss into the cost basis of the Google positions they were protecting as they were called away today. I've opened a new item in tracking for special situations like these as these puts are still open but with no cost basis.

A similar situation is the Quest Software Inc. (NASDAQ:QSFT) Apr $15s which we bought for $1.55 on 11/3. On 11/7, rather than take a big profit we sold the Nov $15s for .85 and bought them out yesterday for .50, leaving the overall basis at $1.20. Yesterday we sold the Dec $15s for $1.15, bringing the basis down to .05 on a $2.05 position on which we "owe" our caller $1.20 for an .85 (1,700%) profit.

In the interest of keeping better numbers, I have set up this new section as these trades really throw off the regular statistics!

We only had 5 losers so let's get them out of the way:

  • Caterpillar Inc. (NYSE:CAT) Dec $60s were just to annoying to hold and we took a 20% loss at $2.85. We still have the Jan '09 $60s, which are flat at $11.40 and I'm thinking about selling some other sucker the Decembers!
  • Chipotle Mexican Grill Inc. (NYSE:CMG) recovered so fast it hurt and the $55 puts were exited at .90 for a 42% loss.
  • It would have been smarter to take all the Goldcorp Inc. (NYSE:GG) $27.50s off the table at 56% but I was greedy and lost 17% on the other half!
  • Coca-Cola Co. (NYSE:KO) looked overbought but it wasn't and the Dec $45 puts quickly dropped a dime to .15 (down 40%).
  • Tesoro Corp. (NYSE:TSO) Nov $65 puts were dumped at .25 after coming so close to working!

Now, on to happier topics:

We had 4 doubles (not including the BEA Systems Inc. (BEAS) puts I didn't play) and 8 other positions that did 50% or better, a big improvement over the last couple of weeks were we got few big plays.

  • Our best positions were, of course, the 2 ICE plays, and we finally got a couple of good oil plays with the Sunoco Inc. (NYSE:SUN) Nov $65 puts that were taken in comments on Thursday at .20 and exited at the end of day for $1.25 (up 525%). BP PLC (NYSE:BP) also gave us a nice profit as the Nov $65 puts ran up to .40 (up 167%) on Thursday's oil crash.
  • Both Williams-Sonoma Inc. (NYSE:WSM) and Starbucks Corp. (NASDAQ:SBUX) gave us quick doubles, with the SBUX coming at the expense of our poor caller, who was wiped out!
  • Selling calls also gave us a nice profit on the Abercrombie & Fitch Co. (NYSE:ANF) Dec $75s which wound up at $2.05 (up 41%) after we bought back the $75 calls for .25 that we had sold for $2.50. If you've ever been burned by options you can appreciate how great it is to sell them; this is something else I have decided to talk more about in the future!
  • My timeliest comment of the week (other than ICE) was Wednesday at 2:48 when I said: "Oceaneering International Inc. (NYSE:OII) is driving me crazy -- have to double down here!" That led to several DDs, but the OII was a home run allowing us to exit the Dec $40 puts on Friday at $1.40 for a 47% profit on the 11/1 play and salvaging 17% from the 10/9 disaster!
  • I gave up on Microsoft Corp. (NASDAQ:MSFT) Dec $30s at .30 (up 50%) after seeing that Zune up close, and I lost faith in RWNK and pulled out of the Dec $12.50s at .20 (up 50%) and .25 (up 67%) two days later as that extra dollar seems kind of far away for both stocks.

The rest of the picks will be detailed in the updated spreadsheet this weekend. This will probably be the last public posting of it before we move it behind the firewall of the pro site!

Next week should be very interesting but the end of the month is going to be wild so let's rest up for the fun!

Have a great weekend,

- Phil

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I realize in talking to people that a lot of you over-commit to positions and need work on cash management. This is one of the things I have decided to spend more time on at the pro site. We had 2 huge gains this week (ICE and SUN) that, by themselves, made enough money to make up for 50 20% losses on other positions.

My trading strategies are meant to insure a good, consistent return -- not swing for the fences investments and I hope to be able to help teach that as we move forward.

I like to gamble as much (probably more) than anybody but that's why I have my famous saying: "Do as I say, not as I do," because we need to be in these things for the long average, not the quick kill.

The BEA Systems Inc. (BEAS) trade this week is a great example. It was an earnings play and they had great earnings but missed expectations. On Wednesday I said that, in addition to the Dec $15s for $1.10, it would be smarter to take the $15 puts for .25.

Well the calls got wiped out and the puts shot up to $2 for a 700% profit. I didn't include them in the week's profits as I didn't take them myself but I should have done what is smart -- not just what is fun!

So really, read "My Trading Policies" and Do as I say -- not as I do!

Read all of Phil Davis's articles on Seeking Alpha

Source: Options Trader: Weekly Wrapup