Options Trader: Friday Outlook

Oh we really hate for a week like this to end.

No matter what, we are going to cover into the weekend, something is still wrong as the Fed just coordinated with the ECB to boost liquidity with our Fed boosting term loan availability for US banks to $150Bn (up 50%). That’s a lot of money to toss into the pot for no reason, so I’m a little concerned that we’ll find out why on Monday morning, possibly another BSC-type blow up. MAYBE they’re simply responding to the running issue with interbank lending to smooth things over while the economy heats back up but….

So how much of yesterday’s rally was based on people who knew this was going to happen (GS) and were buying ahead of the announcement? Europe was closed yesterday so the Fed could have made this decision on Wednesday and waited 48 hours to make the joint announcement when the EU markets reopened. I hate to be suspicious right when we are having so much bullish fun but it’s my nature …

Anyway, none of that matters because we "only" lost 20,000 jobs last month and unemployment DROPPED back to 5% (from 5.1%) and the market is loving it. Forget the fact that 110,000 goods-producing jobs were lost along with 61,000 construction jobs, the largest drop since February 2007 and VERY bad since spring is when construction usually starts. The service sector added 90,000 this month but only added 8,000 in all of Q1 so don’t expect that to continue but the financial sector stopped losing jobs finally although retail dropped 27,000. Temporary employment also fell 9,000, that’s not good either.

In fact, it was a gain of 90,000 government jobs that saved us, another fine example of the total BS spouted by this administration as they preach smaller government while expanding the government more than any President in history. Hourly earnings were up 0.1%, a manageable number.

So this is going to be a "sell into the excitement" kind of rally. We are 1/2 covered and I’m inclined to stay that way as we could give a lot back on Monday if there turns out to be a reason for the Fed’s generosity other than an attempt to bail out the commodity bulls (that would be GS again). We still have food riots around the world and oil is still choking the life out of consumers (which boosted the GDP as people spent more than they could afford to put gas in their cars) so let’s not all put on our party hats just yet.

BHP Billiton (BHP) also shouldn’t be putting on their party dress as their hostile takeover of Rio Tinto (RTP) is running into trouble. This may lead to BHP upping their offer, which makes the Aug $90 puts very attractive at $13.60 and we’ll look to sell the $80 puts at $4 (yesterday’s high). If the deal falls apart, I doubt it will boost BHP''s bloated value and, if they up their offer, it could cost the company 5-10%.

Asia was up about 2% and that’s without (theoretically) knowing about Bernanke’s latest cash dump. We’ll have to see how the dollar holds up on this news but, since we are coordinating with Europe, it may not be dollar negative on the whole. Toyota (TM) is back on track with a 3.4% rise in global sales so we’ll have to roll those callers up in our LTP to a full cover at $105 for the weekend but I think they are safely done going down. Nissan (NSANY) is launching a line of electric cars in 2010.

European markets are flying as well, as the EU and our Fed really cheer up the financial sector and they’ve gained over a point since the announcement this morning. Dutch Rabobank is under investigation for sheltering Billions in taxable income for many Fortune 500 companies, expect to hear more on this story as it’s a great way to fill the campaign coffers in an election year! Another Dutch company that is busy screwing people is Shell (RDS.A), who are pulling out of what was going to be the world’s largest wind farm, effectively killing a project that was moving along just fine until they put their money in, now out. This is the danger of the energy companies who pretend to be green - they get on boards and request studies and fund then unfund projects causing delays and running up costs and then they walk away with a small (for them) loss and say the project was "unworkable," which drives the price of the oil they sell up another $10 per barrel. This is what they call letting the fox into the henhouse…

Speaking of obnoxious corporations, Microsoft (MSFT) seems poised to get hostile with Yahoo(YHOO). We dumped 1/3 of our YHOO June $27.50s yesterday but I think we’ll double up the remainder at $2 as this IS the sort of thing that gets done over a weekend! Imagine working at a fun company like YHOO and being told that Steve Ballmer is going to be your new boss, and you can sympathize with what these poor people are going through. Some things are just not worth any amount of money but they have a responsibility to their shareholders and they haven’t been executing, so don’t look for me to defend YHOO, I’m just sad for them.

Also speaking of heartless corporate a-holes, President Bush has proposed $770M in assistance to alleviate the surge in global food prices he helped (aw hell, he deserves full credit) cause. I’m sure all 2Bn starving people will appreciate the 30 cents. Bush is currently spending over $50M a week buying oil and, of course, $3Bn a week in Iraq (that they admit to).

Well, it’s been a fantastic week but don’t go crazy on this morning rally, let’s watch our levels and make sure we’re prepared for a pullback next week. If we don’t get it, then we’ll start buying!

Comments

[smithoos]

Bravo! Confucius said, "The beginning of wisdom is to start to call things by right names," which Philip Davis does here. Unfortunately, the conservative fire ant brigade is going to descend on his post. Good luck, Phil.

[investorslive]

We'll see what happens. The market needs to consolidate: www.investorslive.com/.../

[Ngu]

Does Phil actuall get paid to write this garbage. Any facts information could be pulled out of the Wall Street Journel. The anti government retoric is a repeat from the T.V media. The ethonal movement was started and pushed by the energy independence movement(democrates for the most part). The 90,000 government workers are seasonal and are hired for the summer by the various government departments every year. Yes, they were hired even under Billy Carter and your lastest hero Bill Clinton.

[aquaculture]

Amusing. Are you the standup comedian in the options trading pit, or the clown at the cocktail party? You sure are dressed for it.
But before you go crush the tulips at your hostess, be honest, did too many of you guys short (RDS.A) before earnings and then got hammered when it upped 5 %? Or was it simply Dutch-bashing-week in Washington and Newyork simultaneously? But wait! Weren't the Dutch the ones who invented the stockmarket in the first place?

You also seem to like lots of windmills. Welcome to the alt. energy section.
But let me ask you a question: have you ever climbed a 300 foot steel pole to do a lube job on a gearbox? Of course not. Shell would find & pay a guy do to it, right? But would the guy do it at night, in the freezing English climate? Sure, more pay.
Investment costs indeed ran up to 2.5 $/peak-watt, due to commodity prices, risk aversion in the credit markets etc. At that price they might as well have tried to sell the Londoners solar panels, avoiding the whole transmission losses and maintenance issues. Delays were mainly due to shortage of offshore equipment, turbine & component manufacturing supply issues. The study of offshore windpower has no doubt been valuable to Shell.
Shell "plans to focus on windpower in the U.S." where "government incentives offered Shell competitive returns". Of course your stats of 16818 MW runs at an annual cost (PTC, green credits) to U.S tax payers >3300 mln $. Is that why the IRS is hunting for money?

As for foxy analogies, the turbine quality ratio GE: GAMESA: VESTAS: SIEMENS: EWT (direct-drive) ---directwind.nl---is about as follows: 1972 Plymouth: a Seat (before VW bought it): a 1980's Saab: a 1990's BMW: a 2010 GM volt.
According to Emergya's board member none of the 750 kW and .9 MW directwind machines need government subsidies. 10 MW machines are on the table. Thank Goodness.
Time to party, lol.

[johntime]

Mr Davis,
I thought this was a stock/option site. The political rant makes me question your trading ability. A good trader can keep his emotions under control. You didn't!