Options Trader: Wednesday Wrapup

by: Philip Davis

That wasn’t so bad!

Oil went to $60 - that’s bad. The CPI was higher than expected - bad. The Fed is concerned about inflation - bad. NovaStar Financial (NFI) dropped 42% today, another subprime bites the dust - bad… And how far down are we?

• Dow fell below 12,750, closing at 12,738.
• Transports gained 14 to 2,944.
• S&P held 1,457.
• NYSE held 9,433.
• Nasdaq went up 5! Finishing at 2,518!
SOX 473 held nicely.
• Russell went up yet again! Finishing at 827!

US Markets

This is not bad at all!

The Dow wasn’t even that bad. General Motors (NYSE:GM), Hewlett-Packard (NYSE:HPQ), Intel (NASDAQ:INTC) and Merck & Co. (NYSE:MRK) accounted for most of the damage. Mainly, there was a lack of big winners that hurt it and, with oil racing up to $60, this is to be expected.

Crude finished at $60.07 and as I said this morning: "If I were an evil manipulative oil roach, I’d be pulling out all the stops this week to pump that contract over $60 before gravity gets hold of it…" and voila - it happens! Too bad I took some Valero Energy (NYSE:VLO) $55 puts at .75 and .50, but that will hopefully teach me not to try to guess the top!

What is truly amazing about the $1.22 move up in oil is that, despite the fact that 236M barrels were traded on today’s April contract, they actually finished the day with 2,000 LESS contracts open than there were yesterday. I call on energy experts to explain to me what non-fraudulent circumstances can cause demand for contracts to drop and price to rise at the same time…

Gold not only held $660 but it blew through $670 and finished up $23 at $680 today against a flat dollar. This was great for our GFI leaps and we need to keep an eye on them now for a selling opportunity on March contracts!

Oil and Dollar

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Not much trading today as I missed the afternoon and, once again, I set stops and they just didn’t trigger!

DaimlerChrysler AG (DCX) dropped too fast to pick up but we’re already half out of this morning’s GM $35 puts at $1 (up 33%), but we applied to profits to the basis and let the whole thing ride with a .75 stop as I think we may still have a way to go. But I want to guarantee 16% at this point.

We took the HPQ Apr $40s for $2.50 but I could only get $1.90 for the Mar $40s, so we are watching this .60 spread carefully (now .55).