Options Trader: Thursday Wrapup

by: Philip Davis

I have to hand it to Cramer for summing up what happened today: He said that terror attacks are already priced into the market so a failed attack is good news, not bad...

This logic is kind of like buying season tickets for the Red Sox - you never really expected them to get into the World Series but you buy them anyway - then, when they win just one, you get all excited and you're willing to pay more next year, even though they will probably go back to losing.

We have expected a terror attack since 9/11 and we know there will be another one but we stopped one and that gives us more hope than we had before - it's a nice point of view!

This is a sort of Indiana Jones moment for the economy where we duck and the bad guy falls over the cliff and we make that big Harrison Ford, self satisfied smile but the music quickly changes and 200 more bad guys come out of the bushes to take his place. I'm not going to put a downer on it so early (the music is just getting started) but let's try to remember there are people trying to kill us before we get too full of ourselves.

The markets were just great today though! We even got nice SOX action but they couldn't hold 415 right at the end.

This morning I had to leave early so 3 hours before the market opened I said we should watch for signs to get back in:

"The S&P fell below the 200 yesterday and it would be a very good sign if it held the 50 dma at 1,260. "

"The Nasdaq is very unlikely to hold 2,050 but a good sign if it does."

I said the NYSE was the strongest and it never came near trouble and I said that the Dow's 200 dma of 11,100 was a big spot and look what happened to all the indices at 1:30 when it retook that level.

Oil, as predicted, had a terrible day but the oil companies generally took a longer view (maybe they've seen this movie before) and rebounded nicely in the last hour or so. Natural gas inventories spooked the oil market but it managed to hold $74 for the day. Today was a good example of why I am glad I got out of oil sector trading this week!

The 50 dma on oil is $73.50 but I don't see people going short on oil into the weekend.

Here's a fun chart that shows we are using much less natural gas than we did in 2002-2005.

You can browse around this great site but the summary is:

* We had 6.5Tft of gas in storage as of this May
* Capacity is 8Tft
* Last year we build up from 6Tft to 7.5Tft between May and Oct.
* Last year production was off 10-15% due to hurricanes
* No hurricanes = more gas than can be stored by Oct 1st!!!

This is what is killing ACI, BTU, FDG and the Railroads (what do you think they were hauling?). Power plants will always use gas over coal if the price is right; coal orders drop off very quickly if natural gas is below $7.50.

Money flew out of Europe today, even if people couldn't, and the dollar got a nice boost which drove gold back under $640. Like I said last week, the terror premium is maxed out and actual terror isn't going to move gold anymore - it is totally reacting to the dollar.

Hopefully we'll get some follow through tomorrow. Economists have dropped the GDP forecast to 2.8% which will add fuel to the 'no more Fed' campfire as will Japan's disappointing growth numbers.


TGT Sept $47.50s did very nicely today, ending up well in the money at $1.60 (up 115%).

LUV was a great call to take the money and run as they zoomed up in the AH. The Sept $17.50 puts opened at $1.40 and held $1.25 (up 105%) before calming down.

STX only nudged up 1% but the Mar $22.50s are already at $1.70 (up 17%).

TOL picked up a point and all the Sept calls jumped up with the $27.50s finishing at .70 (up 15%).

HET had a spectacular recovery today and a nice gap in the AH and the Nov $65s jumped to $1.80 (up 25%).

MGM came just .20 from our stop (maybe we should have just waited) but recovered nicely and the Mar $40s are back to $2.20 (down 5%).

Speaking of 10-Qs (we were in the comments), UNH delayed theirs and the stock dove on fears that they will have some very bad option news - possible buy opportunity?

DIS had a nice recovery and the Sept $30 calls closed at .65 (up 60%).

Gotta love TIF with a big recovery today and the Jan $35s are back at $1.10 (up 10%).

HD Sept $35s are down to .65 and I really like them if tomorrow is a decent day.

EBAY is holding up nicely with the Oct $25s at $1.90 (up 15%).

Our INTC Jan $17.50s are already in the money at $1.70 (up 15%) but the Sept $17.50s were the better mover at .85 (up 40%).

Buying out the TXN Sept $32.50s we sold for .55 (down .15) this morning was a good move as the stock picked up 2.5% today. It's worth it to see how we handle the 200 dma at $31.40 before we sell again. The Jan '09 $30s are already up 10% to $8.40 so no worries there.

C hit a great bottom for us this morning and we got away from that Sept $50 for just .15 this morning (up .45). The Jan '09 $40s dropped to $10.90 (down .40) but that's a wash and we can wait to sell again. If Citigroup has trouble with the $48 mark tomorrow, perhaps we can sell the Aug $47.50 for .80 to steal the .35 premium over the next week.