Options Trader: Wednesday Wrapup

by: Philip Davis

Ha -- take that bears!

We are certainly back to the Meatball Market Philosophy where bad news "Just Doesn't Matter!"

Like I said this morning, from this altitude (Dow 12,000+) all the naysayers just look like little ants down on the ground. Can we hold this altitude? That will be the trick of the week now that we have made a critical 50% retracement of our drop from last week's highs.

I don't have to talk about the dollar anymore as Gary Dorsch has written the definitive article on the subject, neatly recapping everything we've been talking about in one massive article. My thanks to Mike_C for posting this one in comments.

The best summary chart of the bunch is this one, which I call "The Fed stops hiking and the dollar starts crashing:"

Dollar Summary 30 11 06

Of course you can also mirror this chart with the U.S. deficit chart that was under control under Clinton (see steady rise of dollar, coupled with very low oil prices) and quickly turned into a nightmare under Bush II:

US Defecit Chart 30 11 06

Our markets are much less impressive to foreign investors than they are to us as they look at the Dow in their own currencies, which have appreciated faster than our markets have kept up:

Dow in Euro 30 11 06

I'm sorry I couldn't find a more up to date one (perhaps one our readers is a great chartist and could bring this forward) but you get the idea -- the dollar has lost 10% against global currencies this year, and is down 13% against the Euro in particular.

So your stock being up 13% this year isn't impressing anyone who isn't holding dollars in their savings account, and shouldn't impress you either as we need that 13% to keep up with the Joneses or whatever common European and Asian surnames there are.

Finally I'm starting to see a justification for energy stocks! The multinationals collect global currency and deserve a higher valuation than those companies that get paid in sad little American dollars.

So the markets are not actually in orbit -- its just that investors (us!) are tripping and THINK we are in orbit -- kind of like when you experience some massive physical trauma and get that feeling of floating away from your body...


Like I said this morning, I hate to be a downer as it's bad for ratings, but someone in America has to mention this as I have not heard a single analyst mention this all year -- and you would think it's sort of significant!

I was trying to come up with an analogy for this and the best one I could think of is that we have become Cold War Russia! Our government lies to us (hiding the M3, one of many examples) and the media goes along with it and the press doesn't tell you what you don't want to hear allowing the people to drift through their lives accepting the status quo, despite the fact that the rest of the world thinks our country is a disaster!

So does this really matter? No -- as long as you can be happy buying American goods and services and don't have a hankering to travel too far from home, we are lucky enough to be in a fairly self-sufficient nation that can probably get through a crisis, but be aware that there is an inflation storm on the horizon that may or may not be the government's goal, as I proposed earlier in the month.

None of this stops us from making money -- we had a heck of a good day today in fact -- but let's just make sure we all know this may very well fall apart on us and make sure we are nimble enough to jump off the tracks without getting squashed by the oncoming train!


As I said, all our indices made a 50% retracement of their drops -- it's all about the follow-through tomorrow so we will wait and see.

Oil was a disaster, gaining close to 3% on the day ($62.46) and coming to rest only at the 5% rule. Although it was the usual last minute pumping shenanigans that got it there, that's what the chartists will see in the morning and we'll have to plan accordingly.

The dollar held firm as the beige book figures looked generally good and, of course the GDP was better than expected (although expectations were very low).

Gold held flat for the day at $641 and platinum will be testing the 200 DMA at 1,163 today but copper remains weak.

Gold Plat Copper 30 11 06


I'm not too proud of my picks today other than an intraday short of the NASDAQ 100 Trust Shares ETF (QQQQ) that netted a quick 40% as that one took timing, but our monkey with a dartboard could have picked winners today.

  • Boeing Co. (NYSE:BA) Jan $90s ran up to $2.90 (up 20%) while the Jan '08 $90s are back to $10.10 (up 68%) and we should consider selling the Jan $90s against them if they get back over $4 to protect a double.
  • Caterpillar Inc. (NYSE:CAT) Jan $65s inched up to $1.10 (up 20%) and our Jan '09 $60s came back to $11.80 (up 21%).
  • Capital One Financial Corp. (NYSE:COF) went crazy this morning and we sold the Jan $75s for $5.20 while our Jan '08 $75s finished at $12.30 (up 23%). As I said in comments, with a $4.80 basis, I don't mind if they call me away for $10 in January!
  • Dow Chemical Company (NYSE:DOW) Mar $45s finished up a dime at .35 but I didn't do the double-down as oil seemed too high.
  • General Electric Co. (NYSE:GE) had a choppy day and the June $35s finished up a dime at $1.85.
  • We grabbed The Home Depot Inc. (NYSE:HD) $37.50s for .70 on a takeover rumor that is, so far, unsubstantiated but I thought they were ready to break out anyway.
  • Nordstrom Inc. (NYSE:JWN) Jan $50s finished at $2.65 (up 32%) and our Jan '08 $50s rose to $7.50 (up 44%).
  • As I mentioned, we were in and out of the NASDAQ 100 Trust Shares ETF (QQQQ) $40 puts in comments for a very quick 40% profit(.50 to .70) as we picked up on SOX weakness.
  • Our Titanium Metals Corp. (TIE) June $25s shot up to $8.10 (up 20%) and I sold the Dec $30s for $1.40 to lock in the profits for this month.
  • Tiffany & Co. (NYSE:TIF) Jan $35s shot up to $3.90 (up 80%) but I was half out at $4.20 with a $3.60 stop on the rest.
  • I was in and out of Texas Instruments Inc. (NYSE:TXN) for a dime loss as it moved the wrong way.
  • I grabbed the Energy Select Sector SPDR ETF (NYSEARCA:XLE) Jan $58 puts for $1.25 as it just seemed too high but now that I've thought about this global valuation business I may have to reconsider these oil puts.
  • I couldn't help taking the ExxonMobil Corp. (NYSE:XOM) Jan $72.50 puts for .80, as well as the $75 puts for .65, which actually made a dime so far!

Read all of Phil Davis's articles on Seeking Alpha