Options Trader: Friday Morning Ideas

by: Philip Davis

Oh I am so sick of this!

Tropical Storm Ernesto (after 4 storms have come to nothing) has run oil up a dollar overnight (plus yesterday's dollar rise) and natural gas pricing is back to $7.50 on what could have been a fairly nice market day...

No sooner is tropical storm Debbie given the all clear than Tropical Depression 5 (it still isn't strong enough to be properly named Ernesto) has the oil pumpers screaming on all channels that this may disrupt world oil supplies. How many times will people fall for this rubbish? Apparently, a lot!

CNBC is on full-scale hurricane watch. I think I have to violate my don't short oil into the weekend rule and take some puts on this idiocy. Last year, after an actual hurricane actually destroyed major platforms XOM shot up to $64, its all-time high at the time.

Anyway, we will get a nice preview of both the doomsday scenario played out well in advance of this Wednesday storm (if ever) as well as the major market moving words of Uncle Ben. A very good day to stay in cash if ever there was one.

Asia was mixed today but the oil spike came in European trading and thos markets aren't too happy about it so far. Like us, they are waiting for Fed direction but the bond market is still betting they are done raising. I think that if Bernanke was planning on saying they were done, he simply can't do that now with oil back over $73. I said this at the last meeting, the Fed will not ease monetary policy to finance $80 oil!

We will continue to watch our market levels today but, just as we throw out oil movement on the way down, we need to factor out its effects on the way up. I'm going to be more concerned with watching the reacions of individual stocks and sectors to see how they react to spiking oil as well as Fed direction.

Let's keep an eye on USO at $68.50 to see how seriously speculators are taking this oil situation but I think that between the storm an unresloved Iran situation we will get a lot of action into the weekend. Also watch SU who are resting just under the 50 dma at 80.50 for a long-term outlook. Oil itself may have some trouble with the 50 dma of $74 but there may be a lot of short covering that drives the whole sector straight up today.

Gold is up just a bit and is resting just over the 50 dma at $620 but a word from Bernanke can send it right down to $600 where we should get a nice bounce.

If you like rollercoasters, have fun today but I will be trading very little until I get a better picture than we have this morning.


PEIX is too low for a catastrophe, expect it to bounce back up to challenge $20 at least one more time before going down. $20s are .50 and may go to .75 very quickly today, this is a real in and out play though if it doesn't go through $21.

ADM was on my list anyway and are a nice, slow mover so we can momentum trade the Oct $40s for $3.10 but take the loss/don't buy if it goes below $41.50.

TM $105 puts are a nice defensive play at .75.

Absolutely I will be in XOM $70 puts by the end of the day! They are already too high and heading up towards $71 is ridiculous.

On the uside, DWSN is playable but not optionable at $26.

FTK was looking for an excuse to bounce at $16.43.

PBR is in great shape if the Gulf does get hit but the $95s are a little pricey at .70