Options Trader: Wednesday Wrapup

by: Philip Davis

Wheee, what a day!

The trades were flying fast and furious, but I considered it very lucky that we had gone long Diamonds Trust, Series 1 (NYSEARCA:DIA) and PowerShares QQQ Trust, Series 1 (QQQQ) right at the end yesterday and I decided today was a good day to go further into cash.

Right at 9:32 I said:

This is a good time to take stuff off the table that was killing you yesterday. Nothing has really changed other than a few companies that were supposed to have great earnings, having great earnings so be realistic.

Wild Rumpus

The timing was great for cashing out our oil puts just after the inventory as that sector turned around sharply (for no good reason) and the energy sector made up much of the afternoon rally. We messed around with some new oil positions on both sides, but other than Exxon Mobil (NYSE:XOM) $90 puts at $1.40 ahead of earnings, much lighter than we have been in a long time, as I said in the morning post: "We picked up so much downside action in oil yesterday I’m more concerned about a negative surprise."

We got that negative surprise today as oil flew up $2.32 (only in the front months, of course, as the farce continues) but it’s all up to XOM tomorrow who will have to justify what is now a $522B market cap. XOM has gained over $50B in market cap since June 27th, more than the entire value of Valero Energy Corporation (NYSE:VLO) ($38B), Suncor Energy Inc. (NYSE:SU) ($43B), Occidental Petroleum Corporation (NYSE:OXY) ($50B), the newly combined Transocean Inc. (NYSE:RIG) ($33B) & GSF ($17.5B), or the total combination of Sunoco Inc. (NYSE:SUN) ($8.5Bn) + Tesoro Corp. (NYSE:TSO) (7B) + Chesapeake Energy Corporation (NYSE:CHK) ($16B) + GlobalSantaFe Corporation (NYSE:GSF) ($17.5B) so it will be very interesting to see how they manage to justify this runaway valuation.

The Dow was up and down 100 points four times today but ended up nowhere in particular, closing under 13,800, but at least 13,700 seemed to form some sort of a floor. We will be watching the S&P closely tomorrow as Happy Trading and I were disappointed we couldn’t close above 1,520:

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Our Amazon.com Inc. (NASDAQ:AMZN) bear call spread is working out nicely so far as the $85s went off at $6 on the morning jump and have already calmed down to $4.35. I now wish we had taken the money and ran there, as Apple (NASDAQ:AAPL) earnings were so spectacular they may give Amazon and every other tech a little extra boost. We were on top of that one all day, though, and at 3:38 I said: "Apple might still save the markets with spectacular numbers that put them well over $150 as it’s a great consumer story."

It’s at exactly $150 in after hours trading (pat, pat). We detailed our AAPL positions in the weekend wrapup and we made a few adjustments since so now we have this mix:

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We killed the $135 straddle play and, in the Long-Term Portfolio we added 20 Jan ‘09 $140s and sold 15 current $140s against them as we became more bullish on Apple yesterday, when my morning call was: "Apple will be sharply lower in the morning on T’s numbers as "only" 140,000 iPhones were activated. However, the Quarter ended on Saturday and the phones were available at midnight on Friday. That number, therefore, actually constitutes the number of iPhones that were taken home and activated within 24 hours of the phone’s release. So our play of the day is to take the money and run on our puts, buy some $140s as a momentum play and rebuy the puts (as we still want protection into earnings) as the stock recovers (assuming it does!)."

Needless to say, we are all very excited to see how this will work out tomorrow. But it’s looking pretty darned good already!

Mighty Google, who commands the attention of two out of three eyeballs on the ENTIRE Internet EVERY SINGLE DAY, even Google is having business problems because they are not monetizing those eyeballs fast enough to keep investors happy. Look at Yahoo! Inc. (NASDAQ:YHOO), which spends huge amounts of money developing content that they give away for free - the stock is like death! Those 10 Sept $530 Google calls we have in the Free Picks Portfolio lost $5,500 this week.


Google finished the day down another $4 today, but got a little boost in the post-market as Baidu.com, Inc. (NASDAQ:BIDU) posted fantastic results, doubling profits from last year. That stock shot up 20% after hours after gaining 5% on the day. ETrade had a good report, as did QUALCOMM, Inc. (NASDAQ:QCOM), who raised guidance on strong 3G chip demand that I would wager will be going into iPhones very soon! MEMC Electronic Materials, Inc. (WFR) (a big holding for us) not only came through with strong results but will be added to the S&P.

Tomorrow we have 3M Company (NYSE:MMM), Apache Corp. (NYSE:APA), AstraZeneca plc (NYSE:AZN), Beazer Homes USA, Inc. (NYSE:BZH) (Danger Will Robinson!), Becton, Dickinson and Co. (NYSE:BDX), The Black & Decker Corporation (BDK) (big consumer indicator), Blockbuster Inc. (BBI) (probably trouble), Bristol Myers Squibb Co. (NYSE:BMY), Brunswick Corporation (NYSE:BC) (are people buying boats?), Celgene Corporation (NASDAQ:CELG), Comcast Corporation (NASDAQ:CMCSA), Cummins Inc. (NYSE:CMI) (put up or else), Diamond Offshore Drilling, Inc. (NYSE:DO), The Dow Chemical Company (NYSE:DOW), Elan Corporation, plc (NYSE:ELN) (I’ll keep my half), Exxon Mobil (XOM) (I’m back in the $90 puts), For Motor Company (NYSE:F) [LOL], The Goodyear Tire & Rubber Company (NYSE:GT) (prob bad), Hertz Global Holdings, Inc. (NYSE:HTZ), IntercontinentalExchange, Inc. (NYSE:ICE), Kellogg Company (NYSE:K) (butter), L-3 Communications Holdings, Inc. (NYSE:LLL), Level 3 Communications, Inc. (NASDAQ:LVLT), Old Republic International Corporation (NYSE:ORI) (title insurance), Penn National Gaming, Inc. (NASDAQ:PENN), Potash Corp./Saskatchewan (NYSE:POT), Raytheon Company (NYSE:RTN) (guns), SU, Tidewater Inc. (NYSE:TDW), XM Satellite Radio Holdings Inc. (XMSR) - all before you can make a bet! Yep, cash for me thanks…

We need to see a serious breakout on the Nasdaq so let’s root for those four-letter stocks:

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The dollar took a HUGE bounce today and we could get a big covering rally if this continues. The proximate cause of the rally was, interestingly, the LACK of interest in our Treasury auction, which may force the Fed to take action as NOT selling notes is NOT an option for our deficit laden government. "It (auction) came slightly cheaper than expectations. Nothing substantial at all. There’s some short-term weakness at the front of the curve over the next 24 hours because we have five-years on sale later this week," said Adam Brown, head U.S. Treasury trading Barclays Capital in New York

Gold did not take the dollar bounce well at all and gave up $10, but we already knew there was a problem breaking $685 so now we know what it will take. Now we watch copper for a confirmation of gold’s move but things will get very interesting if the dollar starts squeezing the shorts.

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Tomorrow promises to be another very exiting day!