Options Trader: Monday Morning Ideas

by: Philip Davis

The Colts covered the spread (and made the over)!

This is why I can’t live in Vegas, if I was allowed to bet on sports every day I’d probably be doing that instead - that was the most exciting Super Bowl in ages…

Three hundred and forty thousand people have been flooded out of their homes in Indonesia, a nice prelude to the true cost of global warming. On the bright side, there are still 11,700,000 people in Jakarta who haven’t been flooded out yet, but the water is rising. While we may not care enough to even rate this a mention in many newspapers this weekend, the rest of the world is acutely aware of this problem and is investing accordingly.

Polar bears are actually drowning in the Arctic as their ice shelves melt and they now have to swim as much as 60 miles to get to the food that used to be a walk.

Over in Davos, at the World Economic Forum, even John McCain told the delegates that global warming should be a top priority. However, the real shocker came from Iraqi VP Mahdi, who called called the occupation of Iraq an “idiot decision.” Mr. Mahdi dismissed the notion that his country is in a civil war, saying instead that it is facing “a war against civilians” that “targets the whole society.”

PricewaterhouseCoopers does a survey of chief executives every year, and this year it asked if they were concerned about climate change. For the world as a whole, 40 percent said they were at least somewhat concerned. In the United States, the figure is 16 percent. Sam DiPiazza, the chief executive of PWC, had one explanation: “It won’t affect next quarter’s earnings.”

One thing I did learn watching the superbowl is that the Toyota Tundra is a big, strong truck! Boy they had a lot of commercials for that thing. I also learned that Garmin is insane and I will be selling those calls ASAP as that ad made no sense to me at all!

Garmin’s ad was so silly that the Nikkei crashed this morning, dropping 200 points, although its possible that the US filing a WTO complaint against China may have had something to do with it as well. When your largest customer starts banging the drum of protectionism, investors tend to listen. A lot of the Nikkei drop was just profit taking after a good week, and the smaller markets all did very well, led by India (up 1%) and Pakistan (up 2%). Even Indonesia weathered the storm with just a half point dip.

Nissan’s (OTCPK:NSANY) lousy report chased everyone out of the Japanese auto sector and hopefully we’ll get a deal on Toyota Motor (NYSE:TM) ahead of earnings tomorrow as they dropped 1.6% in Japan. Just like here in the U.S., Toyota is just kicking everyone else’s butt! Over in China, regulations have been put in to limit foreigners to buying a single home, for their own use only, to prevent speculation - if only they had thought of this in Florida!

Over in Europe RYAAY posted spectacular numbers and raised guidance and I will be looking at the Marriott International Inc. (NYSE:MAR)'s $95s this morning as a momentum trade, last sold at $1.35. British Airways plc (NYSEARCA:BAB)’s earnings were down 12% and this quarter the non-strike will cost them $157M in lost revenue (but no word about what the concessions will cost them). They are now discounting flights to draw passengers back and have lowered forecasts, so I’m pleased with our MAR $105 puts!

We’ll see how hung over the U.S. traders are this morning as we have little economic news after this morning’s ISM numbers at 10 am. I’m still looking for my dollar bounce, but my exact words on 1/22 were "We’re still waiting for that dollar breakout but Godot came faster!" We can now amend that to "much faster" and we’d be all up to speed on the dollar.

Another thing we’re waiting for is for the housing market to wake up and smell the glut! I’m not even going to get into it on a Monday morning, but here are the charts:

Lingering Market

Of course, oil company revenues and the price of oil companies are on a similar divergence so we’ll see how large both those roach motels can get before it all falls apart; I’ve kind of lost interest in betting against either for the moment…

As far as the markets go, as I said, let’s see how traders do today, as we have very hungover NY stock traders running headlong into chronically depressed Chicago commodity traders:

• Dow needs to stay positive - failing 12,650 would be bad!
• Transports below need to hold 2,850.
• S&P needs to hold 1,445, 1,450 would be amazing!!
• NYSE has the burden of leadership and needs to break out over 9,350.
• Nasdaq must hold 2,475!
SOX 465 must hold - they have steered the marked down too often!
• Russell 805 needs to hold - 810 would be fantastic.

Oil faces a big test of its resolve at $59, although $58.50 is still the spot to watch. They’ve done a fantastic job of forcing the turn in the long-range chart with two weeks of mad pumping, but we’ll see how they handle the pressure of nine days to contract expiration over at the NYMEX.

The March barrel count is still through the roof at 353M but cold weather is saving the traders in February, and Iran is chipping in by continuing to defy the U.N. on Uranium enrichment. The Nigerian strike was, not surprisingly, called off though. No one is actually going to stop pumping oil until they can get the price back over $65. For now, we’ll just have to settle for lots of empty threats.

Can gold hold $650? Only if copper recovers, I think but there’s another market we should avoid at the moment until they are done messing with the dollar. I really don’t see the Euro holding $1.30, but it has refused to cross $1.28, which is were we need to be for a dollar breakout.


Just a little more purging from the portfolio and we’ll be ready to play the earnings game!

Now is the time to start placing bets. With half the companies already reporting, the markets can concentrate on the ones that trickle in over the next four weeks and we already know how most sectors are performing, which helps us make good, comparative predictions.

As predicted by Reinharden way back in November, Apple (NASDAQ:AAPL) did indeed reach a trademark and licensing agreement with Apple Records, but the premarkets are giving it a bit "so what" so far.

The Walt Disney Company (NYSE:DIS) and GlaxoSmithKline plc (NYSE:GSK) are the big names this week, with Disney being the most important as its a great indicator of U.S. consumer travel and leisure trends.

BE Aerospace (NASDAQ:BEAV) came through for us and gave strong guidance; I’m very glad we bought out our caller and held fast to the Jan ‘08 $25s (12/1), which will be ready to roll soon - check in comments as we watch this one!

Fidelity National Financial (NYSE:FNF) is the nation’s largest title insurer, you can’t get a mortgage without it - so let’s keep an eye on their earnings and, more importantly, their forecasts to gauge the real health of the housing industry!

Las Vegas Sands Corp. (NYSE:LVS) reports later today, I’m hoping for some buying to perhaps pick up the $100 puts for under $2, just for fun, not a big bet as anything can happen over the short term.

Overstock.com (NASDAQ:OSTK) is always interesting, they are suing brokerages for shorting them! They are seeking $3.5Bn in damages, that’s 10 times the value of the company. 42% of the stock is still shorted, even though they are already down to $15, from $75 in later ‘04 when all these brokers started picking on them. It would be funny if they actually make a profit, but why break the trend?

Royal Caribbean Cruises Ltd. (NYSE:RCL) made a nice profit. With oil back up they can’t sustain $45, but they will be interesting to watch.