Options Trader: Wednesday Wrapup

by: Philip Davis

Another ho-hum Wednesday.

Just like last week, same as it ever was. Nothing much happened, we could have gone shopping (some of us did!).

Our levels did nothing so we're not going to discuss them. There was a bit of excitement in the morning but the VIX was quickly sedated and slipped back down to 10.3 for the day.

Oil jumped a dollar on a 6M barrel draw, but then Zman and I alerted the markets that the number was, in fact, a major disappointment as we are now in day 7 of the Houston Ship Channel shutting out 80 ships and tankers which have failed to deliver over 16M barrels of oil since last Wednesday.

The new contract finished at $63.72, down .75 from Friday's close. Let's look for $60.80 as our downside target with $62.40 as our nearest waypoint resistance. On the upside, breaking above $64 would be bad, and $65.60 would signal a new uptrend. No current oil contract has seen $64 since October 1st.

Geyser 21 12 06So although CNBC was "shocked" by the draw in oil, we calmly continued to buy puts today while all the oil roaches bounced around in their little traps. As millions of barrels of oil kept piling up in storage:

  • There are 303M barrels on order for February (vs. 77M needed in January).
  • OPEC has been sending (they claim) 1M less barrels per day for a month now.
  • 16M barrels are backed up in the Gulf
  • Demand is falling due to the weather
  • Millions of SUVs have come off the road
  • Airline consolidation means less flight using less fuel, and the less economical planes get scrapped first!
  • Our 2 MILLION BARREL A WEEK war may actually end one day
  • The Democrats are coming!

The reason the global economy runs on oil is because it is cheap! For over 100 years we used oil because, if you make a hole in the ground where there is oil, it comes "gushing" out and all you had to do was scoop it up and pour it into something that could burn it for energy.

There are many, many, many other ways to heat things and cool things and run things without oil, and they have now pushed it way too far -- the backlash of demand destruction is upon us.

The dollar found a little bit of support at 83.5 and may consolidate there for a crack at the falling 50 DMA at around 84, while gold languished at $624.

Options Trader 12-21-2006


It was a light trading day -- here's how our picks fared:

  • Dell Inc. (NASDAQ:DELL) May $27.50s came in at $1.55 but dropped to $1.50.
  • FedEx Corp. (NYSE:FDX) $110 puts (sorry about the confusion) were called off (well, I was trading the $110s) at $1.95 (up 39%) while the $115 puts we sold for $3.50 were bought back for $1.10, leaving us with a basis of $4.60 on the July $120s which finished at $5.50 (up 20%).
  • Corning Inc. (NYSE:GLW) May $20s ran up to $1.85 (up 16%).
  • Texas Instruments Inc. (NYSE:TXN) Apr $27.50s finished the day at $3.10 (up .10).

It was a blah day and we didn't close out as much as we meant to but that's kind of what happened last Wednesday too.

Tomorrow is a very data-heavy schedule:

  • 8:30 a.m. Initial Jobless Claims, 3Q Final GDP (est +2.2%), 3Q Corp. profits (duh, huge)
  • 10:00 a.m. Nov Chicago Fed (was down in Oct), Conference Board Leading Indicators, DJ Business Barometer for Dec 9
  • 12:00 p.m. Dec Philadelphia Fed
  • 4:30 p.m. Money Supply (so they say!)

This is the 3rd different way they are telling us the GDP, and the first two times we've had rallies, so let's hope 3rd times a charm!

Read all of Phil Davis's articles on Seeking Alpha