Options Trader: Monday Wrapup

by: Philip Davis

Yee-haw! Ride them markets!

Gosh this is fun! How can I complain about a day when my calls work AND my puts work?

We almost hit my levels on the indices and I'm tempted to say that 'almost doesn't count' but it certainly did help a lot, so we're not going to complain about it unless we fail to follow through tomorrow.

  • The Dow finished the day at 12,283, very nice!
  • Transports pooped the party at 2,649
  • The S&P laughed off 1,400 and tested 1,410
  • The NYSE blew right through 9,000 to 9,019
  • The Nasdaq almost got me long but finished at 2,450
  • Despite the SOX gaining 2% to 483
  • The Russell made a new high at 795!!!

US Markets 5 12 06

As I said in my very cautious opening statement this morning, "Since we are so near weightlessness, it is very hard for bad news to get a grip and a small booster rocket of good news can still take us higher."

The boost came primarily from the noted M&A activity, the same fuel that got us going on Monday the 20th. As that lasted for 3 days, I'm not too worried about a quick fall today...

Despite that, I called for some protective Diamonds Trust Series 1 ETF (NYSEARCA:DIA) $122 puts for .35 (now .60) as we touched 12,300 -- I did this more as a sign of confidence, as an alternative to taking some very nicely moving calls off the table!

Oil was kind enough to drop a dollar for us and finished the day at $62.49 as the dollar held firm to that 82.5 line. I cannot emphasize enough that oil has gone down every single day for the past 7 days in the eyes of foreign investors! That's why the OPEC ministers are still freaking out -- they are getting less Riyals for oil now than they did in October when oil was touching $60 a barrel for us.

That 3.5% drop in the dollar in the past 10 days should have boosted the price of gold $20 and it did boost it $30 so there is an element of sentiment shift creeping into gold as the dollar loses stability, but a dollar bounce at this level should lead to a very quick correction back to $640 or less.


So with all this good news, what's with the puts?

I've been preaching caution for a couple of weeks now. As I said in the November wrap-up, we've moved the portfolio to almost 50/50 put/call ratio and, of course, my commodity of choice to short is oil -- even though it beats me down again and again and again!

Why do I do it? Well, gold is a hedge against inflation and if something terrible happens I don't like to be short on gold (actually I like to have some usually, just in case). I haven't had any gold (much) over the summer, because I felt the timing was off, but we picked up Northern Dynasty Minerals Ltd. (NYSEMKT:NAK) and Metallica Resources Inc. (MRB) on 9/18 and again on 10/26 and 11/20 -- a very good indication of my growing concerns about the dollar.

We've been daytrading Newmont Mining Corp. (NYSE:NEM), so I don't count that, but we took longer plays on Goldcorp Inc. (NYSE:GG) and Barrick Gold Corp. (NYSE:ABX) (which we still have). So that's my commodity up play as I think a slowing U.S. economy will not drop gold, as it is the alternate safety net to the dollar (as the Euro seems to be becoming too!).


  • We stay away from XOM as we are simply not sophisticated enough to understand the incredible value of that cartel great company. We did indeed make money shorting oil yesterday, as CVX got all uppity at 9:45, leading me to comment: "I can't take CVX anymore! I must buy the Jan $70 puts for .90 -- it's just too ridiculous!" We quickly took $1.10 for half the position to lower the basis on the remainder to a comfortable .70 and stopped the rest out at .95 for a 36% gain. I went back in on the same CVX Jan $70 puts for .90 at the NYMEX close as I was unimpressed by the afternoon pump.
  • Abercrombie & Fitch Co. (NYSE:ANF) (2/20) Feb $72.50s cost $2.80 and the Jan $70s only sold for $2.50 so we'll see how this one goes...
  • ENSCO International Inc. (NYSE:ESV) was kind enough to go down all day and we got in on the Mar $55s for $3.80 (now $4 so still a good deal!). Unfortunately, I never got what I wanted for the Dec $55s, so I'm stuck with just the longer calls at the moment. A purist would argue that the .80 I saved on the calls would have made up for the .80 I could still sell the closer calls for, but I'd rather wait as I really like this company and think it deserves better.
  • Jos. A Bank Clothiers Inc. (NASDAQ:JOSB) (Thursday) worked out very well yesterday, pulling back to exactly $29.69 as the low of the day (probably because we triggered there) while the Jan $30s came in at $2 (now $2.20) and we picked up $4.80 for the July $30s.
  • The Oil Service HOLDRs ETF (NYSEARCA:OIH) Dec $140 puts ran up to $1.25 and we were thrilled to exit them with a 25% profit.
  • optionsXpress Holdings Inc. (NASDAQ:OXPS) had a great day yesterday, probably due to all the trades I made on their system! The Jan $30s finished at $1.20 (up 20%).
  • Pfizer Inc. (NYSE:PFE) settled down just .10 above my $23.50 target and the first thing we jumped on were the $25s for .20 (now .40). At 9:35 I said I wasn't ready to commit to a longer play, but just 6 minutes later we grabbed the Jan $25s for .55 (now .75) as it was firming up fast!
  • Station Casinos Inc. (NYSE:STN) Jan '08 $80s amazingly opened at $4.90 and the Jan $80s were sold for $4.70, so I'm in for .20 on the spread, and the positions closed with a spread of $2.70 for a 1,350% gain on the day -- not too shabby!
  • Toll Brothers Inc. (NYSE:TOL) Dec $30s stopped us out at $2.35 (up 114%) which was just fine with me ahead of earnings, although they turned out OK on the whole.
  • We waited until 11:30 to take our first round of Las Vegas Sands Corp. (NYSE:LVS) puts (still a bit early it turns out) with the Dec $90 puts coming in at .95 in the first round and dropping to .85 by the time we took our second for a .90 total entry. The Jan $95 puts did not go much better as were were happy with a $5.10 entry until we got that second round at $4.50 for a $4.80 total.

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