Options Trader: Weekly Wrapup

by: Philip Davis

Up, up and away - it’s Super Market!

It’s budget proof, oil proof, terror (threat) proof and pullback proof four days in a row!

This is truly a Market of Steel (and the recent movement of X underscores that) and looking at the movement of the past week we really do have to believe it can fly…

We had super performance in our open positions as they improved from 70 positions with a 16% average gain the week before this past one to 77 positions with a 33% average gain this past week (25 average days held). That’s a great improvement and adding length to some of our positions and sticking with them (despite some bearish concerns) really paid off.

We closed out 23 positions for a 52% average gain (28 avg. days), which is pretty good considering we had to close out five dead positions:

• ICICI Bank Limited (NYSE:IBN) Mar $50s seemed like a good idea on 1/22 and they were, for the guy who sold them to me! I still think this one will break out but India tightened up lending requirements the week after we bought these and they were just too painful to hold.
• Altria Group, Inc. (NYSE:MO) $90s (2/1) were a MOmentum play that ended up not having enough, although we did take the first half of this trade off for a nice profit, the remainder got wiped out and ruined the gain.
• Rio Tinto plc (RTP) $190 puts (1/18) just went the wrong way and kept going. It’s going down but we need to wait for a real sign as we were way too far ahead on this entry.
• Exxon Mobil Corporation (NYSE:XOM) $72.50 puts (1/19) were also not worth revisiting as we have plenty of Mar $75 puts that are well in the money already.
• Google (NASDAQ:GOOG) $530s (2/1) were the remainder of a successful play from last week but we shouldn’t have let this ride as far down as we did. This market is still too choppy to leave good profits on the table!

We were saved by our doubles:

• Peabody Energy Corporation (BTU) Mar $40s (2/12) were the top of a spread and we took them off the table at $2 (up 100%) as that gives us a free ride on the downside.
• Google (GOOG) Feb $470s (2/16) were a great day trade yesterday, going from .20 to .45 (avg exit) on a really fun ride!
• Baker Hughes Incorporated (NYSE:BHI) Mar $67.50 puts (2/8) were a great earnings play and we may have been a little early killing the trade at $3.10 but 182% is a too much to leave on the table when we have plenty of other puts!
• Garmin Ltd. (NASDAQ:GRMN) Mar $55s (1/8) came back from the dead, zooming up to $5 (up 225%) on the earnings we expected. That awful Superbowl ad almost had us bailing!
• Station Casinos, Inc. (NYSE:STN) Jan $80s (12/4)were reaching the point of diminishing returns at $6 (up 253%).
• Harrah's Entertainment, Inc. (HET) Jan $85 puts (12/18) also were no longer worth selling puts against so they came off the table at $1.85 (up 270%).

Our long-term portfolio made a very nice improvement too, from 46% to 66%, even though we removed STN and HET, both of which were great gainers! With 57 average days open we currently have $32.68 worth of options sold for each $151.13 of basis points - a very nice monthly return and we still have 18 out of 29 positions waiting to be put to work.

This is the power of the LTP as, just three months into the year, we are already able to generate an excellent monthly return. Only 6 of our 29 long-term trades are negative at the moment - hard to lose with those odds!

The Female Health Company (NASDAQ:FHCO) stopped us out at $1.90 (up 54%) leaving us with just six regular stock positions up 11% after 77 average days held so I’m going to go on a quest to hunt up more stocks for those of you who are so inclined!

If we really have broken orbit there should be a lot of exciting small plays and we should pick out some positions to watch for the upcoming CNBC challenge anyway so I’ll start looking for likely candidates to at least join our watch list.

If we can get through next week’s Fed minutes unscathed, there is no reason not to expect to quickly leave 12,800 in the dust, especially if we can get those SOX in gear!