Options Trader: Tuesday Wrapup

by: Philip Davis

Intel beat by a penny!

Intel Inside 17 01 2007It's selling off in the after-hours, but I think they're wrong and Reinharden thinks they're wrong but we'll see what the big boys think tomorrow. Intel was at $21 just last week so a 33% pullback now that earnings are out is not a major surprise from the mo-mo players, who could care less what the report actually said.

I blame the headline in the WSJ: "Intel's Net Income Tumbles 39%, Pressured by Competition, Options." It's hard to get excited about a beat when they hit you with that one... There's been no CC yet and we do need Intel to get tech in gear tomorrow as it's currently dragging down the whole market. Phillips and Samsung news was so blah over the weekend it was easy to see Intel in a negative light.

On closer exam of the actual earnings I see that the .26 included a one-time gain from an asset sale so we may not actually have .26 in earnings when the dust settles. Gross margins, on the other hand were up 5% from last Q but the guidance was only in-line with no margin improvement. We'll see how forgiving the markets are tomorrow...

The rest of the markets, other than the Nasdaq did fairly well today, despite another major commodity sell-off:

I don't blame the markets today. It's tough to gain ground when oil drops all the way down to $51.21 and a huge market sector is decimated. We got a test of my $50.79 level before the afternoon pump, which was a pathetic affair that only gained them .40 into the close after being down $2.20 at 2pm!

NYMEX traders managed to shed 50,000 contracts, leaving just 149,000,0000 barrels open for delivery in February. A big improvement, but is it enough? 34M barrels were shoved into March, which now has 329K open contracts and another 20M were tossed into April, not known as a heavy demand month but already bursting with 83M barrels on order. Contango continues to collapse with .60 now separating the average month this year, that's not a very good fee to ask you to tie up $52 in a barrel of crude for another month...

I think the transports are now selling themselves way short as you can now buy a barrel of crude every month of 2007 for $56 or less. Since that average figure was closer to $70 just one month ago it seems to me that every single estimate for companies that use fuel are WAY, WAY OFF!

Airlines 17 01 2007The airlines are obvious as they spend about 1/3 of their income on fuel. Continental Airlines Corp. (NYSE:CAL), for example, spent over $3B on fuel in 2006 and made a profit of $300M. Should CAL be able to hedge out '07 at $55 a barrel, that would throw about $500M to their bottom line and give them a P/E of around 5!

FedEx Corp. (NYSE:FDX) spent about $2.4B on fuel last year (.pdf) and a 20% savings there could drop a quick $500M to their $2B bottom line. None of this is even remotely projected! I know I'm the suspicious type, but doesn't it seem strange that the transports are still trading lower than they were in May when oil was at $75? Of course we'd like to make sure that this drop in crude prices sticks but let's perhaps consider being on the right side of that trade when it happens!

So I'm very happy with our FDX July $120s but we have to wait until 3/21 for the earnings. The good news is, we already have December and January in the bag and the fuel savings should be huge! Heck, even Delta might make money in this environment and we're still sitting on some of those calls!

The dollar held 85 today after testing lower and gold stayed frozen between the lines at $625. It may seem strange but gold has options that expire too and we may just be seeing some pinning ahead of expiration. Next week should be very interesting.

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