Options Trader: Weekly Wrapup

by: Philip Davis

I said in the morning that "markets will react (or overreact) to whatever jobs number we get" and they certainly did both!

The Dow flew up to 12,300 in the first 15 minutes, dove to 12,250 in the next, flew all the way up to 12,331 just an hour later, and finished fairly well at 12,307 -- but they got me today with that early move!

Options Trader 12-10-2006_03

It took a while for the market to come around to my Goldilocks view of the jobs report, but the other indices all made similar moves eventually except the SOX and the Transports, who missed our marks. This does leave me neutral towards the markets going into Monday.

Oil fell again and we had a great time with puts for the third day in a row -- our Valero Group mainly gave us a nice spike at the open and drifted down all day, despite a desperate and very fake pump job on oil earlier in the day. At one point oil was up over $1 and we took that time to grab more puts!

Options Trader 12-10-2006_04

The stake in the heart for oil came as the dollar bounced off our 82.50 targetand was propelled 1% higher by comments made by Hank Paulson on CNBC at mid-day. After that, the drop was just a matter of time!

Options Trader 12-10-2006_06

Crude did hold $62.03, so we are not out of the woods yet but it was another interesting day at the NYMEX as losses mounted across the board. The February contract (active a week from today) had huge volume but still dropped to $63.09, just $1.06 over the current month contract! This is not good for traders who are in the red and were hoping to roll into the next month -- unless of course there are people who are willing to let them store their oil very cheaply as they pray for a very late (or very, very early) hurricane...

Now the November contracts, at $67.95, have fallen below the October contracts ($68.08), and both are higher than the Decembers, which dropped to $67.73. The September contracts, at $67.35 are still below the August contract price ($67.39). Oh the horror!

Since everyone on the planet was short the dollar this week (except us, of course) there could be a bit of a short squeeze next week, depending on how the China trip goes of course. Gold moved in tandem with the dollar, losing 1% on the day and looking weak, to say the least.

Options Trader 12-10-2006_07


I stopped out of my Diamonds Trust Series 1 ETF (NYSEARCA:DIA) $122 puts at .55 (up 57%), DIA $123 puts for $1 (up 67%) and NASDAQ 100 Trust Shares ETF (QQQQ) $44 puts at .70 (up 133%) on the upturn (as I was enthusiastic). But then, as I was left unprotected, I let myself get shaken out of a some calls on the turn down.

We finished up the week with a bang, and we've had a streak of good calls, but I don't delude myself that I am either Lou Gehrig or Joe DiMaggio, and you never know when your luck will turn, so I took a lot off the table into the weekend (and I was very spooked by the mornings whiplash move!):

  • American Express Company (NYSE:AXP) Jan $60s hit our price and seemed safe on the way up at $1.30.
  • Bank of America Corp. (NYSE:BAC) was a no-trade, opening too high.
  • Best Buy Co. Inc. (NYSE:BBY) Jan $52.50 was very tempting back at $3 today but I wasn't feeling that adventurous (we just sold them for $4.30 on Tues!). I regret not rebuying now since I went to one last night (Fri) and it was a zoo!
  • Boston Scientific Corp. (NYSE:BSX) Jan '08 $17.50s still aren't moving (still $2.50) but I'm considering additional positions at this price and selling the Jan $17.50s for .50 as an income producer as 20% a month is a pretty good income! I should probably just do it with the ones I have but I really think this thing's going to bounce back at this point -- which is what I'm sure the 83,000 January callers are thinking too...
  • We added the Chesapeake Energy Corp. (NYSE:CHK) Jan $32.50s for $1.05 (yes calls) as additional cover to protect profits over the weekend on our remaining oil puts.
  • I shorted more ConocoPhillips (NYSE:COP) out of principal with the Jan $70 puts at $1.85, but a big spike scared me into selling the $70 puts for .65 as a small cover.
  • DALRQ (Delta Air Lines) Jan '08 $2.50s jumped up a dime to .20 (up 300%) so I took half off the table. As I said at the beginning, these could end up worthless so effectively the remainder is a free ride with a year to play out.
  • eBay Inc. (NASDAQ:EBAY) Dec $32.50s were taken off the table at .45 (down 25%) as it looked too weak to keep after the Cramer pump and yesterday's drop were just not worth holding with expiration looming. We still have the Jans and a hopeful attitude!
  • Corning Inc. (NYSE:GLW) Feb $22.50s came in at .80 but if they can't break $21 I'm out quick!
  • I don't know why Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) went down all day, and I didn't stick around to find out -- so I gave up at $52 (up 25%).
  • Options Trader 12-10-2006_08

  • It looks like I will get called away by those Google Inc. (NASDAQ:GOOG) $370s I sold for $40 with a just a 21% profit (the other guy has a triple!) 8-(
  • Intel Corp. (NASDAQ:INTC) finally came off the watch list as I said at 10:01 (with the stock at $20.61) "Watch out for INTC -- they can save the SOX by themselves with a .25 gain." I grabbed the Jan $22.50s for .25 and the stock did go up to $20.85 but pulled back to finish at $20.68.
  • Options Trader 12-10-2006_09

  • Jos. A Bank Clothiers Inc. (NASDAQ:JOSB) served it's purpose (getting a discount on the Jan $30s) and we took out our July $30 caller for $4.50 (up .10) and sold the stock for $30.50 for a $1.11 total gain, so I'm applying the $1 credit (allowing for commissions) to the Jan $30 puts (that were all I ever wanted in the first place) to lower the basis to a very nice $1! I was thrilled to be able to take out of the Julys after earnings got away from me. It is very important to remember why you took a position (one of the reasons I first started keeping a blog!), as I said on Monday, "the options are outrageous and I refuse to pay for them -- so I'm going to let someone else buy them for me: I take the stock for $29.69, sell the ridiculous July $30s for $4.40 and buy the Jan $30s for $1.75." Mission Accomplished!
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  • Eli Lilly & Co. (NYSE:LLY) Apr $55s came in at $2, hopefully we didn't jump the gun on this but they were $2.50 on Tuesday...
  • Yes, I'm a MOToholic (Motorola Inc. (MOT))! I picked up the Jan $22.50s for .40, which they held despite a poor finish.
  • Microsoft Corp. (NASDAQ:MSFT) took a huge jump at 2:30, I think because there was a court decision cracking down on software fraud that should net them a healthy profit boost right when Vista is coming out. A huge buy was made at the close for $20.40 so we may need to get on the Mo train on Monday!
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  • I got scared out of Netease.com Inc. (NASDAQ:NTES) Mar $17.50s at $2.15 (up 16%) on the morning drop.
  • We focused on the Oil Service HOLDRs ETF (NYSEARCA:OIH) $145 puts right out of the gate and picked them up on the turn at $1.20, stopped half out quickly at $1.55, reducing the remaining basis to a comfortable .85, and took them off the table at $1.20 ( up 41%). We went back in about 90 minutes later for $1.20 again (what the heck, it worked once) and I kept half at close to reduce the remaining basis to $1.
  • optionsXpress Holdings Inc. (NASDAQ:OXPS) Jan $30s pushed me out in the morning for .90 (down .10) but rebounded very nicely once I was gone!
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  • Research In Motion Ltd. (RIMM) bounced back up and triggered the sale of the other half of the Jan $130 puts for $9.80 for a $9 average sale and a $1 spread on the full trade!
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  • Suncor Energy Inc. (NYSE:SU) $80 puts were picked up for $1.40 but I got out even (too many puts for safety). They finished at $1.70 for those who stayed in.
  • I was stopped out of Toyota Motor Corp. (NYSE:TM) Jan $120s at $2.55 (up 34%).
  • We decided a double was too much to risk on the Valero Energy Corp. (NYSE:VLO) $55 puts, exited at .90 (up 100%).
  • At 9:53 I said, "If this is the best XOM can do on an .80 rise in crude it may be time to sell those calls already!" I was right, but I held on to them for the protection over the weekend, which allowed me to hold puts through the dips.
  • I cannot believe I'm saying this (after 2 months of rolling and doubling) but I took the rest of the XOM $75 puts off the table at .65, up 141% (because we applied the profit from the first half to the basis on the remainder)! Remind me never to do that again -- way too stressful... Interestingly, despite the drop, my protective Apr $80s went up .20 to $2.45, as I said when we bought them, "I think these will be slow to fall (look how many die hard oil bulls there are)."

So that was a great finish to a pretty good, but choppy week!


In summary, we closed 30 positions this week (including 12/1 because of the month roll) for an average gain of 70% on a low average hold of 6 days as we've taken a lot of day trades in this choppy market.

The only losers were EBAY, Las Vegas Sands Corp. (NYSE:LVS) and OXPS, and none of them hurt too bad, and we had 9 doubles out of our 27 winners.

Our open portfolio is in spectacular shape with 51 open positions that are already also up 70% after 17 days(average). This of course includes ridiculous gains by DALRQ (400%), MGM Mirage (NYSE:MGM) (631%) and Station Casinos Inc. (NYSE:STN) (1,375%), and eliminating those gains brings us down to 40%, but then I should eliminate my 3 wipeouts as well which would bring us back to a more realistic 45% -- but that's still pretty darn good!

I hope your week went well too! I have a great new theory on the dollar so make sure you check back over the weekend to see if we can move the markets as much as we did with the week's articles on mortgage delinquencies hurting the bankers (Tues) and, of course, the overvaluation of Exxon (Mon).

Of course we warned about the death of the dollar here ages ago, that's where all these good picks came from! Will we shift gears? Stay tuned!

Have a great weekend,

- Phil

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