Options Trader: Tuesday Wrapup

by: Philip Davis

Well, that was a little better.

Of course, oil going up to $57 really killed my day. We expected it, we planned for it, but we didn’t really want it to happen! We didn’t take any new oil trades as crude opened in our danger zone of $54.60 and never really looked back but we have some February puts that are likely to be past recovery now.

The markets, on the other hand, did OK and a lot of our positive plays got more so:

• Dow again topped out at 12,540 but made progress to finish at 12,523.
• Transports finished flat at 2,716.
• S&P went up all day but still under 1,430 by 2 points.
• NYSE also flew up and covered our magic 9,200 mark.
• Nasdaq finished just two points under our 2,450 goal but remember, that was a pullback from our real goal of 2,475!
• SOX were no real help, flat at 460.53 (we need that .53!).
• The Russell is actually running away from us, leaping to 798.

On the whole, a pretty good Tuesday but it’s all about the Fed tomorrow. They met and met and met today, seems like a lot of bother over 10 or 12 new words in the policy statement, but let’s watch the fun tomorrow as those 10 or 12 words rock the global markets!

US Markets 31 01 2007 Chart

Rule # 1 in energy trading: Listen to ZMan!! In today's column he said he was down to 20% of his normal puts (all March) as he expected them to play up the gas draw. He also said:

"TSO Had A Blowout, Best In Show Quarter Yesterday. No stock is changing hands on the acquisition of a west coast Shell refinery and several hundred service stations and I’m told accretion amounts to 20% in 2007. Debt to cap will be under 50% after the deal and I’m holding off on taking action here until the shine where’s off a bit."

TSO was good for another 4% today!

We checked out the NYMEX stats yesterday and let’s see how they changed today (1 day lag):

• March Open: 384K (-2K) $57 (+$2.96)
- 209K contracts traded.
• April Open: 116K (+2) $57.70 (+$2.89)
- 68K contracts traded
• May Open: 57K (+2) $58.33 (+$2.84)
- 17K contracts traded
• June Open: 98K (+2) $58.92 (+$2.80)
- 11K contracts traded

Still just .70 between the first three months and dropping down to .25 between May and June - not a big premium! I’m going to reserve judgment until tomorrow before I say that a sudden $3 jump in crude seems suspicious. I’m sure there was a huge, legitimate demand for the March contracts and 384M barrels just won’t be enough for our energy crazy country (even through 28M barrels was enough last month).

The dollar dropped .12 but held 85.00 ahead of the Fed while gold eked out a dollar to finish at $644. If the oil rally is real, gold should jump on anything but a tightening tomorrow.

Oil Dollar Gold 31 01 2007 Chart

SanDisk Corp. (SNDK) had disastrous earnings, posting a loss with sales up 55%. Kustomz nailed it when he said at 12:18: "SNDK back at CES the CEO made a statement that was kind of disturbing. Willing to forgo making money to sell product. Scary when you own the stock. One to be careful with." To which I responded: "SNDK - I sold the $40s on the last dip and I guess the fact that I’m not willing to risk $1.40 to flip them to the $42.50s pre-earnings says it all!" On the whole, it looks like I should have sold the $37.50s!

"The flash industry is experiencing over-supply and prices have been coming down rapidly," Chief Financial Officer Judy Bruner said on a conference call with analysts following the earnings report. "Average selling prices will fall more from the fourth quarter to the first quarter than the 17 percent decline from the third quarter to the fourth", she added. "The pricing environment is uncertain for the remainder of the year," she said. No, I think we’re certain! Say bye-bye SOX!

Flextronics International Ltd. (NASDAQ:FLEX) had very good earnings but Juniper (NYSE:JNPR) did not have enough of a beat to make people forget about the options investigation that drags on and on over there.

Chubb Corp. (NYSE:CB) gave a good report that will hopefully breathe some life into our lagging insurance plays.

Amylin Pharm. (AMLN) sounded pretty good to me sounded pretty good to me but sold off after hours. Of interest to us the the $137M in Byetta sales which is their half that they split with our LLY.