Options Trader: Thursday Wrapup

by: Philip Davis

Not going down is good!

Going up more would have been better, there was nothing in today’s action that made me sell my puts or even take out my Diamonds Trust, Series 1 (NYSEARCA:DIA) $122 caller (he paid me $1.31, now $1.50).

I was less than thrilled and ended the day in a bearish posture but nervous enough about it to have bets ready to break either way. I think this rally is tentative at best, but let’s see how many of our indices made that critical 33% retracement we’ve been looking for:

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US Markets

I expected two out of the three of the NYSE, SOX and RUT to break 33% and the Russell is our laggard today. But the NYSE and SOX moved up with some authority, which would have been more encouraging had the other indices not pulled well back off their highs (right around the magic 33% mark).

The SOX put on the best show with a really nice 2% gain, gapping above the 50 dma but pulling back from 475 very sharply. My real fear with this movement is that a poor open tomorrow can lead us to the same (but opposite) abandoned baby pattern that started this rally. The low volumes were also a concern as these purchases can be quickly reversed by fund action.

Oil again failed to break $62 and 3 tries is all it usually gets before a nice pullback so we may end up having to short oil into the weekend (April puts only) should they close below tomorrow.

Gold was surprisingly tame and fell back to $60.50 as the dollar gathered strength, and I am telling you that you just can not count the dollar out - it is truly the Rocky of currencies. The dollar itself is still a valuable safety commodity and, as the demand for the Yen drops, assets have to be converted into something and the dollar is the better value at the moment.

Dollar and Oil

The ECB raised rates to 3.75% today, making it more expensive to borrow Euros and since there really are only the 3 viable international currencies and gold seems to be losing its luster - one can easily imagine a scenario in which the dollar may seem like a nice, safe bet with the Euro up another 5% against the dollar since 12/1. You can drag the time value on this chart for a far better picture of the dollar/euro relationship than I could ever put into words.

Just for kicks, you can drag the bar back over the last couple of presidential elections and see what other countries think about the performance of our CEO-in-Chief (as he likes to call himself).


Here’s an analysis of today’s closed positions in the Challenge Portfolio and I recommend anyone who wants to get into exotic option strategies play with a virtual portfolio [this one is optionsXpress Holdings, Inc. (NASDAQ:OXPS)] and indulge yourself there before you over-commit real capital.

The major problem with this (and it is MAJOR) is it only buys to the Ask price and only sells to the Bid price costing me about .20 per trade. I don’t mind the handicap but it doesn’t do me any good to post these trades if people get the wrong idea about proper entries and exits. Not only that but the fact that no actual offer is made leaves you at the mercy of the next person who makes a bid, and I’ve already seen some really bad behavior by other traders costing me money!

.20 may not seem like a big deal but that’s $2,200 on the 110 contracts traded just today:

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In other portfolios, we didn’t need to touch the LTP today (bless it’s little heart!) and we made a few sales against the STP.

One nice lemons to lemonade play was a speculative play on the Google (NASDAQ:GOOG) $470s we took in the morning. That didn’t work out so we quickly turned around and sold the $460s as a momentum play on the way down, making enough money to pay for the $470s!

Dell (NASDAQ:DELL) had an awful day so we scrapped our original plan an picked up the May $22.50s for .95 instead.

Peabody Energy Corporation (BTU) $40 puts stopped us out at $1.60 (up 60%).

Our GOOG $460 caller stopped out at $4.70 (up 91%) and the $470 caller stopped out at $2.50 (up 260%) which left the other GOOG calls naked and hopeful but it was too close to expiration to risk it.

We grabbed the Barnes & Noble, Inc. (NYSE:BKS) May $40s for $1.45 and they are off to a rockin’ start.