Options Trader: Friday Outlook

Last Friday it was "GE, I Wish I’d Stayed In Bed" but last night we couldn’t sleep as Christmas came 8 months early on our Google trades.

Just like kids at Christmas, we can’t wait for the opening bell to get our presents. We have a big rule at PSW and that’s ALWAYS sell into the initial excitement, but our other rule is, When in doubt, sell half. I think we’ll have very tight stops on 1/2 of our shorter calls and also a plan to roll our callers into the initial excitement, as laid out in last night’s post.

The whole market is off to a rockin’ start because, as I predicted on March 28th, Citigroup’s (C) earnings were not that terrible, and that’s all it takes in this market of very low expectation. So, thanks to Meredith Whitney and all the other hyenas, who worked so hard to give us these phenomenal entry points on so many stocks!

Not only are our bullish plays going well, but a reversal of sentiment in equities is going to let a little air out of the commodity bubble as hot money scrambles to follow the next trend, so we might even get a little relief on our oil puts - isn’t that amazing?!?

Asia was not amazed this morning with the Nikkei posting just a half-point gain while the Hang Seng dropped a quarter point, following the Shanghai Composite, which gave up yet another 4% today, dropping to 3,094, a fresh 52-week low. PTR fell 5% and finished below its IPO price as inflation worries start to bite the very guys that are at the root of the inflation. This is Shakespearean sonnet-level poetic justice!

Europe is having a better time and is up about 1.5% pre market (8 am) despite RBS indicating they would need to raise a $24 Billion to shore up their capital base. The BOE is aggressively working on a plan to bail out the banks designed to "help banks find a home for billions of dollars in hard-to-sell mortgages that have been piling up on their balance sheets and preventing them from making new loans." Interestingly, the BOE plan is similar to my solution to the US mortgage crisis as the BOE plans to take $60Bn of mortgages off the banks' hands as collateral for loans of government securities. My plan does the same thing except we aim the aid at the homeowners while still freeing up the same liquidity on the bank’s end.

Our futures are so bright, we’ve gotta wear shades as Caterpillar (CAT) adds to the party with exceptional earnings based, not surprisingly, on strong overseas growth. Schlumberer SLB had good growth but missed - is it enough to justify the all-time highs of the Oil Service HOLDRS (OIH) group?

Well, I’m going to cut this short as it’s Google, Google, Google on the board and we have a lot of chips to cash in this morning!

Have an excellent weekend!

Comments

[User 143167]

You lost all the creditibility on saying China is the root cause for inflation while its government is trying its best to control inflation and their people consume one tenth of energy than Americans do per capita wise. Everyone is created equal and no law in the world stipulates that Chinese have to live at a much lower living standard than people in the developed world do for ever.
Wake UP! The White House, the Fed and most of the US people ARE the root cause for global inflation.
Shame on you!

[Collegestudentbored]

User, per capita statistics are fantastic but do not accurately reflect the absolute demand (which is all the market cares about) that has skyrocketed for everything because of the sheer size of China and India. People are not asking the Chinese to live at a lower standard of life than other countries, we are stating matter of factly that increased demand has brought prices through the roof. Second, Chinese government might be tryin its darndest to keep inflation down, but the last numbers say they are failing miserably with record inflation. Finally, I only agree with one part of ur assertation that US policy has impacted inflation and is our divining into alternative energies n the chain effect that has had on the grains and other foodstuff(that when produced are the root of every food we eat) that has sent inflation for (go try and buy some milk see how much more expensive it is) a nice little ride. To say that China and Indian are not a major reason for inflation is to have no idea of economics, markets, or common sense.

[User 143167]

College student, you should know that US HAS MORE absolute demand on energy than China and India COMBINED right now. Also they provide inexpensive products to the US that helps a lot to keep the inflation down in the states. That means, as high their energy demand as you perceive, you use large portion of that energy to produce for the people here in the US. So you should NOT count the energy useage on the people who produce in China or India BUT on the people who consume in the developed world. The same theory applies to the polution. It is a pure shame for the US people who mock at the pollution level in the China, and at the same time, move all the pollution industries to the developing world to make goods for them to consume. The US loses respect in the world big time now for a reason.
China has a much higher CPI number BECAUSE that country uses a comparatively real statistical model than the BLS. Grantedly, they are simply not as smart as the BLS is. Otherwise, they should consolidate all of their exporting companies into one cartel like OPEC does so as to raise their exporting prices as much as possible. In that case, they would sell less in volume, but way more profitable. Try to find a cheap OEM replacement at China's size will be a nightmare to the developed world. And China still holds one trillion US debt and they can derail the fragil US credit market by selling them altogether, if US wants a trade war.
To sum up, the real problem for China is that they are TOO KIND. And don't expect that kindness hanging up too long if US authorities treat them like this author may prefer.

[Collegestudentbored]

The pollution point is well taken although I have never heard of a world class marathon runner not wanting to come to US for the olympics for fear of illness. As far as absolutes go, you are correct that we have larger absolute numbers, but exponential increase in demand from such low levels from China and India have been a main cause of inflation meanwhile they still have lower levels. As far as the debt question goes...China can absolutely call in all our debt if they want to see a plunge in the world economy, the dollar fall off the face of the earth which would be beneficial for them how? We are their second biggest importer, they need us as much if not more than we need them, so the theoretical argument about whether they should call in the debt is ludicrious.

[Philip Davis]

I agree with you guys 100%, I was talking about PTR/Oil Prices being the root cause of inflation, not China but I do see how that's unclear to people who don't read me every day.

[User 143167]

China will not call in all the debts unless some powerful boys here boycott Chinese products so as to "protect jobs in the America". But you still don't catch my point, please just find out why their use of energy and natural resources increase exponentially. They are using these resources to make products mostly for this WHOLE WORLD, not for themselves as you may believe. So you guys' call on China and India reducing energy consumption is off the picture big time. The developed world is STILL the root cause of this energy disaster and everyone here should live a way more energy efficient and GLOBAL environment friendly. (Ship the polluting industry out to China is NOT the solution.) Then less import/outsourcing orders will be placed on Chinese and Indian OEMs to reduce their use of energy.

Philip, you have as little idea about Chinese stocks as the country itself. PTR has different series of shares listed in HK and Shanghai at different IPO prices. The same as in the US, IPO prices tend to be highest in the peak of a bull market, that was the case of PTR's A share IPO last fall. This also applies to the Blackstone IPO. However, I don't see your logic to say inflation bites PTR the company, which raised MAX money in their mainland IPO.

[Philip Davis]

I'm talking about PTR as an oil company which is part of the global run-up in oil which is causing inflation, nothing at all to do with China.

To clarify the point you guys seem to be trying to make about China - Yes, the anti-China rhetoric is ridiculous. America outsourced it's factory work to China and with it we outsourced a lot of very crappy jobs and a lot of pollution and a lot of health-care costs and a lot of social programs that were needed to care for under-paid factory worker families.

We also oursourced a tremendous amount of oil consumption, none of this is a really bad thing. Factory jobs began in the East coast cities and, as those areas became more prosperous they moved to places like Detroit BECAUSE prosperous cities don't want those jobs!

People have this Norma Rae vision of the glory of factory jobs but the reality of factory jobs is huge bankrupt companies like GM that can't afford the concessions they made in the 60s. How many people do you know who say "Oh I used to sew hair into Barbie dolls 10 hours a day - I wish I had that job back"?

So China can have the bulk of our manufacturing and when they become more prosperous, they will outsource those jobs to Africa (my investment prediction for 2025). Where we (US) are failing is in replacing those jobs with "high-tech" manufacturing jobs becuase we don't do enough R&D anymore to create the next big thing - that's not China's fault.

XOM spent $31Bn last year buying back their own stock and another $8Bn on dividend payments. This creates nothing other than fleeting shareholder wealth. During this time their CapEx was just $15Bn out of $404Bn in revenues (R&D spending = 0). No wonder PTR is catching up to XOM in market cap, at least they look for oil!

I like PTR, really I do, but all the oil majors have let their costs run wild (as evidenced by the record numbers being posted by the oil service companies, tanker companies etc) and that is a very dangerous position to be in when all they sell is a variably priced commodity.