Options Trader: Friday Outlook

Can we trade tomorrow?

This week is so good we don’t want it to end.  Even though Google (GOOG) missed (see last night’s wrap up), we see that as only another buying opportunity while Citi (C) beat all expectations with a $2.5Bn loss, not even in the ballpark of the doom and gloom hyena festival that was being run by the three-ring circus of Whitney, Cramer and GS.  Hopefully this is the end of the financial mania that has been raging since I wrote about it last quarter.

We bought C back in late March in the $20s, got stopped out in May but last month we loaded up on all the financials and we pressed those bets the last two weeks leaving us, as I mentioned last week, very overweight in financials.  At the time I said, given the choice between a barrel of oil or 10 shares of C, we’ll take the C!  Congrats to all who played along.

Stupid Options Trick: Google missed last night and we took advantage of the after-hours window to grab QQQQ puts to protect ourselves (in addition to our direct covers of course).  We were able to pick up the Aug $45 puts for $1.64 at about 4:09 and this is a wonderful and little-used way of protecting yourself when earnings don’t go your way.  Looking at the Nasdaq pre-market, I’m not sure we’ll need them but, as I said at the time, we can cover with July $45 puts and pick up a quick profit on the spread and then hold them for weekend protection.   You can buy index puts and calls through 4:15, it’s a great way to hedge during earnings season if we get very good or very bad news at the bell.

See last night’s post for our Google and Apple (AAPL) strategy for today, GOOG is a little below our target but AAPL is right at our $170 mark, a real gift on the calls we sold!  Oil had its usual BS pump job pre-market, all the way back to $132 but is already back to $128 at 8:30 and there is nothing more important to the health of the global economy than popping this bubble.  Our pals the Democrats are pressing hard to FORCE Bush to release 10% of the SPR and I outlined a working plan to do just that on Monday so don’t tell me you can’t get things done quickly in Washington!  Just the threat of Congressional action is enough to send the oil roaches scurrying for the exits. Yesterday, in member chat, we went through a scenario where $100 oil should be enough to get us back to the mid 13,000s on the Dow.

"Right now," says Pelosi, "the President is sitting on over 700 million barrels of oil. This is oil that has been bought and paid for by the American taxpayer and is warehoused in the Strategic Petroleum Reserve. It is there for emergencies and we have a national emergency in terms of the energy crisis in our country. The SPR is 97 1/2 percent full. The fullest it has ever been in history. All we’re asking the President to do is to take 10 percent of that oil and release it over time into the marketplace, increase the supply, reduce the price."

Asia was mixed as oil rallied to $132 while they were open.  The Nikkei dropped 84 with a harsh rejection ahead of 13,000 and the Hang Seng finished up 139, having no luck at 22,000.  We had a rotten close and scary Google earnings and people in Asia still think Microsoft (MSFT) is what MSFT used to be so we’ll just ignore them and move on to Europe, where markets literally flew higher on C’s earnings report, now up well over 1% across the board.  They are also getting generally better-than-expected earnings.

Freddie Mac (FRE) is moving towards their much anticipated dilutive stock sale and they are going — UP!  That’s right, if I own a company that’s worth $5Bn (let’s say I have the only share) and my company sells 2 shares for $10Bn, are our 3 shares worth 1/3 of $5Bn (this is Cramer’s math logic) or are they worth $5Bn for the business PLUS $10Bn in cash divided by 3 shares or THE SAME $5Bn PER SHARE???  Only if your company starts selling shares at a discount do you have to worry, but what do you care if your company can go to the street and turn their paper into cash at the same price you are holding it?  This is just another way that these "analysts" try to shake the retail shareholders out of positions by talking down to you as if "dilution" is the word they had to learn to get their masters degree.

We’re having a fantastic week doing the exact opposite of what Cramer, Whitney, GS, CNBC and the WSJ have been telling us to do these past few weeks. It’s very important to log these events so we can refer back to them next time the hyenas line up to panic the markets out of positions.

Still not getting too excited but we’re well covered and getting confident and in good position to buy next week.  Today we’re going to follow the Apple and Google strategy, grabbing cheap July and Aug GOOG calls at the open and taking out our AAPL callers on the morning dip.  We’ll keep an eye on oil but under $132.50 is just fine for the day, hopefully we can get much lower than that, maybe down $5 to $127.50.

Have a great weekend!

Comments

[BlueDog]

"We were able to pick up the Aug $45 puts for $1.64 at about 4:09 and this is a wonderful and little-used way of protecting yourself when earnings don’t go your way."

How is it that these puts cost you $1.64, the Naz is down -1.88%, yet the options are selling for $1.56?

[Al Rob]

only 1500 more points up on the Dow and we will be back to where you called the bottom!

Things are looking good!

[Philip Davis]

Actually the puts cost less than that, 500 at avg. (300 then 200)$1.37, not sure where that number came from. I think $1.64 must have been the estimated price I was looking at as I wrote. Anyway, we got out at $1.51 with a small profit.

Yes Al, please keep selling me your shares!

[BSchecker]

C- yes it went up, but who wants a company that is losing $2.5B. Hope you sold over $20.