Options Trader: Tuesday Wrapup

by: Philip Davis

See -- no problem!

It was a little scary at first: we had our nice puts to protect us, but by 9:45 we were already switching to Diamonds Trust Series 1 ETF (NYSEARCA:DIA) $124 calls as the market began to turn.

We picked up a lot of bargains (we hope) on the morning dip and dumped a lot of oil positions as that sector took off on us. At 9:58 I said about the oil sector: "A 1.66% bounce is expected and meaningless," and the Oil Service HOLDRs ETF (NYSEARCA:OIH) closed up 1.56%, Energy Select Sector SPDR ETF (NYSEARCA:XLE) closed up 1.7% and the OGX closed up 1.39% so no worries there either!

We held almost every single one of our levels!

  • The Dow took a neat bounce right off 12,400
  • Transports missed by 2,580 by 1.41
  • The S&P went above and beyond at 1,425
  • The NYSE came out of it's coma and flew to 9,140
  • The Nasdaq also made a remarkable recovery ending at 2,430
  • No help from the SOX, who dropped all the way to 469 (still not good!)
  • The Russell actually did pull out of its power dive >right at 775!

Options Trader 12-20-2006

VIX 20 12 06So on the whole we held up very well today. The VIX threatened but dropped back down to a nice, relaxing 10.30, just 10% off its lows.

Oil made a nasty .94 gain on the last day of January trading with just 33.7M barrels left open at the close of the contract. Crude bounced off our $61.69 mark and flew back up to close at $63.15 (+1%). More importantly, the bloated February contract (with 300M barrels open) closed at 63.46, just .31 ahead of the January contract.

We were very surprised in comments today at the very low expectations set for tomorrow's inventory report as "analysts" are looking for just a 1.8M barrel draw in crude despite:

  • OPEC cutbacks (that they made a big deal about last week)
  • The winter
  • A .7% increase in refining (time 23Mbd = 1.2Mb for the week)
  • The fact that 2.6Mbd has been shut in for 6 days at Houston

Drawing only 1.8M barrels would be a true Hannukkah Miracle! ZMan even had a copy of the Houston shipping schedule!

After a 7Mb draw 2 weeks ago and a 4.6Mb draw last week, with 12Mb of tankers shut in -- they are predicting just a 3.2Mb draw on .7% increase in refining capacity.

It's not even mathematically possible!

Gold made a nice $7.50 (1.2%) comeback against a very weak dollar (-6.4%).

Options Trader 12-20-2006


All in all the day was quite a relief and we took a few more off the table and opened a few new positions:

  • Cramer is on about Adobe Systems Inc. (NASDAQ:ADBE) being unfairly sold off and he's absolutely correct! This is a great stock being given away for $41.45. I was hoping to see it test the 50 DMA at $40, but with Cramer on the case this might get away from us. I like the Apr $45s for $1.75 but I will sell the Feb $45s if they get close to giving me my money back!
  • We lost the rest of the American Express Company (NYSE:AXP) Jan $60s at $2.50 (up 127%).
  • ConocoPhillips (NYSE:COP) Jan $70s stopped out even at .80. We picked up the $75 calls for $1.25 to cover our remaining puts and they finished the day up a dime.
  • Chevron Corp. (NYSE:CVX) Jan $70 puts stopped out even at .30.
  • eBay Inc. (NASDAQ:EBAY) Jan $32.50s were added at $1.10 (I wasn't as quick as Soccer!).
  • I took the FedEx Corp. (NYSE:FDX) July $120s for $7 and sold the Jan $115s for $3.50 -- a last minute change of plan!
  • Corning Inc. (NYSE:GLW) seemed cheap with the May $20s at $1.60.
  • We played Google Inc. (NASDAQ:GOOG) $490s from $5.40 to $6.70 (up 24%) but lost .50 of that gain on the Jan $430 puts from $4 to $3.50.
  • Intel Corp. (NASDAQ:INTC) $20s were entered at $1.05.
  • Marathon Oil Corp. (NYSE:MRO) $90 puts were initiated at $1.20 but I expect to take a DD closer to .60!
  • I sort of doubled down on the NASDAQ 100 Trust Shares ETF (QQQQ) $45s but I took the closer quarterlies for .10!
  • Toll Brothers Inc. (NYSE:TOL) Jan $32.50s were taken off the table at $1.65 (up 32%) ahead of earnings as it wasn't worth the risk.
  • Energy Select Sector SPDR ETF (XLE) $59 puts were another victim of the oil pump at .90 (up 38%).
  • ExxonMobil Corp. (NYSE:XOM) $72.50 puts were taken out at .50 (up 25%) and the $75 puts were cut off at $1 (up 18%).

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