Options Trader: Thursday Wrapup

by: Philip Davis

What a nice day that was!

Median home prices were down 2.7% and it just didn’t matter!
• The first time in 20 years they’ve declined.
• Paul Wolfowitz, now President of the World Bank, wants to curb global warming - and it doesn’t matter!
An Imperial Oil Refinery Fire rallied crude, but it just didn’t matter!
Industrial Output fell 5% and it just didn’t matter!
China may buy less treasury notes and it just doesn’t matter!
• They now have 66Bn more dollars now than when we freaked about them having a Trillion just two months ago.
NATO is bailing out in Afghanistan but it just doesn’t matter!

Industrial Production

Nothing matters when you look down at all these little earthbound problems from the height of Dow 12,800, they are all just little ants on the ground on a planet so far away that you can’t even feel the pull of its gravity anymore…

Onward and upward is our goal and we are heading straight for the moon, just a little bit higher and we escape the last vestiges of our old levels, tethered only by the SOX, who hold us down with the longest cord. The SOX were stretched all the way to 560 last February and snapped back to 385 in July, dragging the whole market down with them, until we cut that cord, we will have a hard time being sure we have truly broken free.

Nothing to complain about in the markets but I took some Diamonds Trust, Series 1 (NYSEARCA:DIA) Mar $127 puts just in case:

• Dow made a new ATH at 12,765!
• Transports held up at 2,919!
• S&P is closing in on my mark at 1,456!
• NYSE added seven more, finishing at 9,434!
• Nasdaq took 2,497 just three points away from respectability!
SOX 473.91 shows that they are at least trying
• Russell grinds on but we can’t afford to have them stop at 815.

US Markets

Crude closed back at $57.99 on the above mentioned news. We caught some Al Queda guy in Iraq or something, hard to tell what’s going on over there… It was a crazy day over at the NYMEX where they traded 140,000 thousand-barrel contracts 255,000 times just to move 38M barrels of crude from March to April-May, which picked up 21M of them. 918M barrels remain open for ‘07 and, as we will be 1/4 into the year now, we can start monitoring that total barrel count.

March still stands at 102M open barrels with two trading days left and the breakdown is as follows:

• March Open: 102K (-38K) $57.99 (-.01)
• 254K contracts traded today.
• April Open: 319K (+12K) $58.51 (-.06)
• 135K contracts traded today.
• May Open: 106K (+3K) $59.16 (-.09)
• 36K contracts traded today.
• June Open: 104K (+2K) $59.73 (-.09)
• 17K contracts traded today.

Longer contracts dropped even further with Jan ‘08 down .28, Jan ‘09 down .37 and Jan ‘10 down .55. Even December 2012 was down .66 and, even at a projected bargain of $61.25 a barrel, they could only find takers for 44 contracts. You can buy them! Just plop down $61,250 and you would be the proud owner of 1,000 barrels of crude at $61.25 in 2012. Surely you must want to go for a deal like that, oil was just at $75 last summer…

Someone must want some! Cruise ships? Truck companies? Airlines? T. Boone??? At $61.25 a barrel 5.75 years from now, there is only open interest for 16M barrels in a country that consumes 20M barrels a day. Why if we didn’t know any better, we would have to assume that the current pricing is some sort of sham!

In case you’re wondering if this is normal commodity behavior - no, it isn’t! Gold trades out to Dec. 2011 but an ounce of gold for that date will set you back $838 an ounce, a 25% markup to today’s price. 2011 silver is $15.90, coffee is $135 (now $114), copper is $240 (uh-oh, down a bit), cotton is $61 (now $54)…

The dollar bounced off 84 to finish at 84.13 while gold held flat at $677 but also losing more ground on longer contracts.