Options Trader: Weekly Wrapup

by: Philip Davis

What an amazing week that was!

Happy and I were talking and we are both very pleased with the charts - more on that tomorrow…

Last weekend I told you that the market could indeed exist in a metaphysical bullish or bearish state indefinitely, and it would be up to the observers to decide which it was going to be. You don’t have to believe in Santa Clause to sit on a fat guy’s lap - and we were like kids in a candy store this week, grabbing up calls and making hay while the sun shines (while keeping our trusty umbrellas under the mattress!).

Our mattress plays seemed almost silly this week, but they sure made us feel good on Thursday morning. We still haven’t gotten past stage one as the market posted gain after gain all week. There was little economic news of note, and earnings have been coming in better than expected with 66% of the reporting companies beating expectations and only 17% missing so far. Of course Google was the beat of the week, but there was plenty of cheer to spread around with Citigroup (NYSE:C) [got Washington Mutual (NYSE:WM)], The Coca-Cola Company (NYSE:KO) (got ‘em), Intel (NASDAQ:INTC) (got ‘em), Johnson & Johnson (NYSE:JNJ) (got ‘em), JPMorgan Chase & Co. (NYSE:JPM) (not int.), Motorola (MOT) (got ‘em), Google (NASDAQ:GOOG) (got a gaggle) and Nokia Corp. (NYSE:NOK) (got MOT) all getting lots of good attention.

General Electric (NYSE:GE) (got ‘em) was great too but pinned at $35, while IBM (got ‘em) got beaten down (maybe pinned) despite a pretty good report. eBay (NASDAQ:EBAY) (got ‘em) also seemed to go the wrong way, finishing right in between the $32.50 and $35 options. Bank of America Corp. (NYSE:BAC) was iffy but shook it off, while Merck & Co., Inc. (NYSE:MRK) (had puts 8-(). Pfizer Inc. (NYSE:PFE) took off despite aging pipelines. In short, things looked pretty good with the majors and things were so good that we’re going to need to update our chart levels as our old ones are pretty much all green now:




 

Day’s

Break

50

62%

Break

Index

Current

Move

Down

DMA

Fib Level

Up

Dow 12,961 153 12,400 1,245 12,528 12,650
Transports 2,905 26 2,736 2,817 2,889 2,983
S&P 1,484 13 1,410 1,426 1,427 1,460
NYSE 9,697 95 9,250 9,250 9,218 9,465
Nasdaq 2,526 21 2,400 2,440 2,454 2,500
SOX 487 1 470 472 477 490
Russell 828 9 790 798 803 820
Hang Seng 20,566 266 19,400 19,941 20,192 20,600
Nikkei 17,452 80 17,200 17,417 17,617 18,000
BSE (India) 13,897 266 12,750 13,425 13,814 14,200
DAX 7,342 99 6,700 6,818 6,830 7,100
CAC 40 5938 109 5,500 5,597 5,601 5,780
FTSE 6,486 46 6,200 6,298 6,297 6,450
Click to enlarge

I said last week that it was up to Europe to lead the way and boy did they with a huge jump on Thursday and Friday. I had to recheck the CAC though as I can’t believe it’s up 10% this month but it is and the FTSE and DAX are up huge as well, all setting new records. The EU markets are on a huge 4-year run we are all playing catch-up with Asia, which shows no signs of slowing down.

We appropriately started this week off with our Google Earnings Plays (more on those later) and Asia gave us a real boost on Monday morning as we came out of the G7 meeting like one big happy family. Citibank downgraded Tesoro (NYSE:TSO), possibly the only thing keeping them under $110 for the week. We were in and out of that all week, however, as it now makes our favorite momentum play.

We wisely gave up on oil puts (mostly) for the week as we watched our barrel count diminish faster than expected but that didn’t stop us from shorting Schlumberger Limited (NYSE:SLB) to great effect on Tuesday. While we worried about global inflation, I said:

How to Invest in Brazil

Let’s be more concerned about a pullback in Europe today than in our own markets but, if they can hold up, we will have a green light to head off to the races (kind of like Brazil in the good old days!).

Maybe I’m old, but I remember what a hot, hyper-inflated market Brazil was back in the ’80s as even our fine banking institutions plowed money into an economy that was paying 90% interest. While we’re not there yet -I’m sure they didn’t see it coming either. Of course we want to have money in the markets as stock certificates themselves are commodities of a sort - frankly, corporations show more restraint printing those up than our government does in printing dollars.

Tuesday looked toppy and we put a little under the mattress but we didn’t end up needing any support even though Yahoo (NASDAQ:YHOO) had a shockingly poor report that gave us a poor start on Wednesday. It was off to the races on Wednesday as the Dow made a record close, but the SOX started falling apart on us, so we weren’t able to relax. Thursday morning Asia melted down, and we didn’t.

Money Bag

I made my call of the week on Thursday morning when I said:

Let’s remember that Asia sold back down to Monday’s levels and the Dow is 200 points above that. A 100-point drop would be a sign of strength not weakness… hopefully a nice opportunity to pick up a little money and add a few positions as other people panic around us!

The markets opened 50 points lower, but ended the day back above 12,800 - AND THEN GOOGLE HAD EARNINGS! There was no doubt on Friday morning that we were ready for lift-off and we opened above and held 12,900 all day.

As I said in the morning:

The dollar is dead and blah, blah, blah - if no one else cares why should we? We have now entered into a very funny/complacent phase of the market where a drop in Asian markets don’t bother us and a collapsing U.S. economy doesn’t bother Asia - it’s a big world out there and we are moving from first to third in style!

We ended the week with a huge bang and the Dow finished all the way up at $12,961 and only the SOX and Transports (same all week) failing to pin the needle - nothing to worry about yet but plenty to worry about if it continues next week.

We also pinned the needle on our portfolios with massive gains as we were ridiculously bullish at just the right time for it. Nonetheless, we took a lot off the table too and I will continue to scale back a bit next week as it will be more fun to play this rally with house money, anyway!

It was a very busy closing week and the Short-Term Portfolio lost 43 positions with an average gain of 53% on 26 average days held and a spectacular cash gain of 1,140% since most of the gains came from positions we sold [ConocoPhillips (NYSE:COP), 5 Googles, PetroChina Company Limited (NYSE:PTR), Transocean Inc. (NYSE:RIG) and Target Corp. (NYSE:TGT), Titanium Metals Corporation (TIE) and Tesoro (TSO).

This is a really good percentage as we had 11 total wipeouts, mostly puts (no matter how bullish, we hedge). They were mitigated by a great comeback, though, by: Textron (NYSE:TXT) (up 500%), YHOO puts (up 443%), PepsiCo Inc. (NYSE:PEP) $35s (up 400%), our yesterday trade GOOG $490 puts (up 167%) Dell (NASDAQ:DELL) calls (up 167%) as well as doubles from GOOG, GOOG, PTR, COP, WM and Toyota Motor Corporation (NYSE:TM):

Symbol Qty Paid Sold Prof/Loss %
BNI A $ 80.00 P 4/4 10 $0.90 $ - 4/20 $ (0.90) -100%
COP A $ 65.00 P 4/3 -100 $ 0.45 $ - 4/20 $ (0.45) 100%
DIA A $120.00 P 3/7 100 $1.00 $ - 4/20 $ (1.00) -100%
DELL A $ 22.50 C 2/16 30 $1.05 $ 2.80 4/17 $ 1.75 167%
DNA A $ 80.00 C 3/5 -10 $3.80 $ 2.00 4/17 $ (1.80) 47%
GOOG A $470.00 C 3/30 -20 $ 8.45 $ 12.50 4/16 $ 4.05 48%
GOOG A $490.00 P 4/19 -50 $ 4.50 $ 1.00 4/20 $ (3.50) 78%
GOOG A $490.00 C 4/3 -20 $6.10 $ - 4/20 $ (6.10) 100%
GOOG A $500.00 C 4/16 20 $2.00 $ 2.75 4/18 $ 0.75 38%
GOOG M $480.00 C 4/19 10 $14.00 $ 21.00 4/20 $ 7.00 50%
GOOG M $510.00 C 4/16 20 $4.75 $ 5.85 4/18 $ 1.10 23%
GOOG A $450.00 P 4/19 -50 $ 5.90 $ - 4/20 $ (5.90) 100%
GOOG A $490.00 P 4/20 150 $ 2.25 $ 6.00 4/20 $ 3.75 167%
GOOG M $470.00 P 4/19 -10 $ 5.25 4.50 4/20 $ (0.75) 14%
HAL M $ 32.50 C 4/11 20 $1.25 $ 1.25 4/17 $ - 0%
ICE A $130.00 C 4/17 -30 $3.00 $ 0.75 4/19 $ (2.25) 75%
IGW A $ 60.00 C 4/3 10 $1.35 $ 4.10 4/20 $ 2.75 204%
MCO A $ 70.00 P 4/17 100 $1.20 $ 2.20 4/18 $ 1.00 83%
MRK M $ 42.50 P 3/5 75 $0.65 $ - 4/20 $ (0.65) -100%
MT M $ 55.00 C 3/30 10 $1.55 $ 1.75 4/17 $ 0.20 13%
NEM A $ 50.00 C 2/23 10 $0.50 $ - 4/20 $ (0.50) -100%
INTC M $ 20.00 C 1/22 40 $0.65 $ 1.25 4/17 $ 0.60 92%
INTC J $ 20.00 C 3/5 50 $0.98 $ 1.70 4/17 $ 0.72 73%
PEP A $ 65.00 C 3/5 100 $0.35 $ 1.75 4/20 $ 1.40 400%
TRMP A $ 20.00 C 3/28 50 $0.45 $ - 4/20 $ (0.45) -100%
PTR A $120.00 C 2/27 -10 $2.60 $ - 4/20 $ (2.60) 100%
AAPL A $ 90.00 C 4/17 20 $0.75 $ 1.25 4/17 $ 0.50 67%
CRZO A $ 30.00 P 3/19 20 $ 0.80 $ - 4/20 $ (0.80) -100%
RIG M $ 85.00 C 4/16 -20 $2.20 $ 1.50 4/17 $ (0.70) 32%
SPY A $141.00 P 3/30 200 $0.45 $ - 4/20 $ (0.45) -100%
SII A $ 40.00 P 2/22 5 $1.00 $ - 4/20 $ (1.00) -100%
SUN A $ 65.00 P 3/7 50 $2.10 $ - 4/20 $ (2.10) -100%
TGT A $ 60.00 C 4/1 -30 $0.85 $ 0.60 4/16 $ (0.25) 29%
TIE A $ 35.00 C 3/16 -60 $1.40 $ 0.30 4/19 $ (1.10) 79%
TM M $130.00 C 4/16 50 $1.25 $ 1.65 4/20 $ 1.50 120%
TSO A $110.00 P 4/17 -100 $2.60 $ 1.50 4/20 $ (1.10) 42%
TSO A $110.00 P 4/19 30 $1.50 $ 2.20 4/19 $ 0.70 47%
TSO A $110.00 P 4/20 30 $1.70 $ 2.75 4/20 $ 1.05 62%
TXT A $ 95.00 C 3/16 16 $1.15 $ 6.90 4/20 $ 5.75 500%
VLO A $ 55.00 P 3/9 300 $0.24 $ - 4/20 $ (0.24) -100%
WM A $ 40.00 C 4/17 -10 $1.30 $ 2.60 4/20 $ 1.30 100%
XTO A $ 50.00 P 2/22 5 $1.75 $ - 4/20 $ (1.75) -100%
YHOO A $ 30.00 P 4/17 100 $0.35 $ 1.90 4/18 $ 1.55 443%
YRCW A $ 45.00 C 1/16 5 $1.05 $ 0.25 4/20 $ (0.80) -76%
Click to enlarge

The remaining 72 open Short-Term positions have a ridiculous average gain of 124% due to massive gains of over 1,000% from BE Aerospace, Inc. (NASDAQ:BEAV), PTR and TIE. The more realistic gain on cash is a sensible 20%. However, once again we have too much weighting in the STP vs. the LTP, so we’ll be looking to pare these down next week.

Our Long-Term Portfolio is in fine shape with 46 positions that have an average gain of 122% and a cash gain of 29% on 59 average days open. The cash gain is way down because we took a lot off the table this week. We closed out 16 positions with an average gain of 100% on 63 average days held with a gain on cash of 306%. This represented 60% of the LTPs total gains as we repositioned deep in the money calls from The Boeing Company (NYSE:BA), iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), Sears Holdings (NASDAQ:SHLD) and MEMC Electronic Materials, Inc. (WFR):

Symbol Qty Paid Sold P/L %
AIG A $ 65.00 C 3/16 -12 $2.85 $ 2.50 4/16 $ (0.35) 12%
AMZN J $ 37.50 C 1/29 10 $6.60 $ 8.80 4/16 $ 2.20 33%
COF A $ 75.00 C 3/16 -20 $3.30 $ 1.90 4/16 $ (1.40) 42%
CAT A $ 65.00 C 3/5 -20 $1.75 $ 2.50 4/17 $ 0.75 43%
BA J $ 90.00 C 3/7 40 $2.10 $ 10.30 4/18 $ 8.20 390%
CY A $ 20.00 C 2/26 -5 $1.00 $ 0.70 4/18 $ (0.30) 30%
FHN A $ 40.00 P 2/27 30 $0.80 $ 1.60 4/18 $ 0.80 100%
MOT A $ 17.50 C 3/16 -35 $1.25 $ 0.60 4/18 $ (0.65) 52%
BA J $ 90.00 C 3/7 20 $2.10 $ 10.30 4/18 $ 8.20 390%
SBUX A $ 30.00 C 3/19 -14 $1.50 $ 0.50 4/19 $ (1.00) 67%
CAT J $ 60.00 C 11/6 20 $9.80 $ 17.80 4/20 $ 8.00 82%
FD A $ 42.50 C 3/16 -20 $2.70 $ 2.45 4/20 $ (0.25) 9%
FXI J $100.00 C 3/6 20 $12.00 $ 17.35 4/20 $ 5.35 45%
LVS A $ 95.00 P 2/6 -20 $10.00 $ 4.20 4/20 $ (5.80) 58%
SHLD J $190.00 C 11/11 10 $16.15 $ 32.75 4/20 $ 16.60 103%
SNDK A $ 42.50 C 3/16 -10 $1.20 $ 0.05 4/20 $ (1.15) 96%
WFR J $ 50.00 C 1/26 10 $7.10 $ 17.80 4/20 $ 10.70 151%
Click to enlarge

This is what we were waiting for after two pretty mediocre weeks as we treaded water with the markets. I said a couple of weeks ago that we wouldn’t care whether it was up or down, as long as we got a big move - but up is really so much nicer!

Our stocks positions are expanding as we added Dendreon Corporation (NASDAQ:DNDN), GOOG and The Knot (KNOT) last week, all of which we sold calls against with an average gain of 13% in that portfolio (spreadsheets posted on member site).

We had some rough going with the $10K Portfolio as we took total losses in MRK and Valero Energy Corporation (NYSE:VLO) as well as what may as well have been a total loss in TSO, which we rolled to May $105 puts. We closed out 12 positions out of 28 in a very active week as we started out behind and I made a lot of quick trades to catch up. I’m currently showing a total value of 12,358 after our first month and I’ll be leaving all the trades together (open and closed) so we can discuss them over the weekend. I’m looking to learn what is and is not working for people, as this is a new approach for me.

Have a great weekend,

- Phil