Options Trader: Thursday Morning Ideas

by: Philip Davis

Last Thursday was not good.

Yesterday was not good either. It wasn’t bad - it just wasn’t good. Something has to perk up tech, especially the semis or it may be time to lighten up again into the holidays. Today may be the critical day as the VIX crashes and we set a direction ahead of the inevitable rebound after options expiration.

That’s the other big factor, options expire tomorrow and you can see a lot of stocks flat-lining into expiration and we can’t trust any movement we see this week so be very careful out there!tim johnson

As of 7am, oil was up a full dollar in European trading. Sen. Tim Johnson (D - SD) is in critical condition and should he be forced to step down the Republican Governor, Mike Rounds, gets to appoint his successor and swing the Senate back to the Republicans!

OPEC did nothing but pledged to cut another 500Kbd in February, so let’s keep an eye on the March and April contracts to see how real the traders think this is. I will likely take this one last opportunity to double down Jan oil puts - if it ever stops going up!

Our prayers go out to Senator Johnson, who is just 59 but seems to have had a stroke - he is listed in critical condition after emergency surgery .

Asian markets were up across the board with India recovering 305 more points and saving my market of the year prediction (at least this week). The Hang Seng erased yesterday’s drop entirely as Chinese leaders seemed intent on making a public showing of telling Paulson and Bernanke who was really the boss while privately releasing “work plans for various government agencies to tackle tensions between the two countries.”

“We have had the genuine feeling that some American friends are not only having limited knowledge of, but harbouring much misunderstanding about the reality in China,” VP Wu told Paulson and other senior Washington policy-makers at the start of their two-day meeting in Beijing. “This is not conducive to the sound development of our bilateral relations.”

Europe was flat this morning, BP has been advised there will be formal charges related to price fixing in a widening investigation.

At home we have to switch to watching our bottoms as oil will put early pressure on the markets:

- Dow 12,300 must hold although we tested 12,200 already this week. It still looks more ready to break up than down.

- Transports are just sad and 2,580 is a breakdown

- The S&P has been comfortable over 1,410 and any move below will be a strong signal to tighten up our stops.
- The NYSE gave us leadership yesterday and needs to hold 9,050
- The Nasdaq must hold 2,425 and must break 2,450 or what the heck are we doing holding tech?

- Any additional downward movement in the SOX may leave them unrecoverable short-term

- The Russell is flashing danger signs under 790 and must retake it

1984 magOPEC has managed to foster more competition in Malasyia as Wilmar buys PPB Oil Palmsto created a $4.3B biodiesel conglomerate predicted to produce 14M barrels of crude a year (2.1Bn tons) on about 4,000 sq miles of land. ADM is a partner on this project. Palms grow in the desert and America has over a million square miles of desert gathering dust…

I said on Monday I would be happy if we can hold $61.69 on oil through the end of the week - anything else will be a bonus and we’ll have to let the chips fall where they may.

There was not much out of China to indicate the dollar should be firming up while there was not much out of OPEC to indicate there will be any major changes there so we’ll see how many barrels are really needed for January delivery at the end of the day.opec

There are currently 158M barrels scheduled for January delivery and 255M barrels on tap for February with 101Mb open in March at $62.92. March is the contract I will watch most closely as they will take a hit on any real OPEC cut. This March oil was at $62.50 (avg).

Let’s watch gold to see how it’s going in China but I’ve made a lot of bets this week on Super Banker and Chair Man pulling our fat out of the fire and slaying the Chinese dragon this week - if today isn’t payday I’m not sure how I will feel about taking it into the weekend...

Bush actually managed to find 23 people who approve of his Iraq Policy in the latest polls but 6 others out of 100 were “not sure” so congrats to the President for keeping 6 people baffled with BS! The poll has record lows across the board after just 6 years on the job.

iraq polls


Needless to say I have little appetite for new picks as today is a good day to catch up and manage our existing trades.

I’m hoping for a nice spike (as opposed to a run) in oil (NYSEARCA:USO) to give us a nice entry on one more round of puts (same as yesterday and on our sheet) but I may get more than I wished for if I’m wrong and traders are willing to roll those January contracts forward into a February cut.

If we can get a big down spike in the Dow, I may want to take a stab at the Diamonds Trust, Series 1 ETF (NYSEARCA:DIA) calls today. We had a quickie with the puts yesterday but it was far easier to see the bottom than the top.

Hopefully we’ll just get, at worst, a whole lot of nothing into the weekend but let’s be careful out there because, as I said last week, “I could never get the hang of Thursdays!