Options Trader: Wednesday Wrapup

by: Philip Davis

Another very strong day in the markets. This is getting a little tedious isn’t it?

We had an exciting pullback in the morning but it was over by 11 and the rest of the day pretty much came up roses.

All our indices flew up through our resistance points and we will have a whole new set of targets tomorrow (I kind of miss sideways trading).

The SOX were a little weak but can be forgiven for pulling back 3.5 after a 27 point run this week! They are jockeying for the lead with the Transports, who stopped right up at the 5% rule, but still managed to poke through 2,500—just to prove they could!

Oil rallied on very bad math. Analysts were expecting a slight overall build with a draw in oil and an offsetting build in gas, but instead got a 2.9m draw in crude, flat gas levels, and a whopping 4.7m build in distillates. If you add it all up it still means they had 1.6m barrels of “stuff” more than they needed!

Still oil managed to add 21 cents to finish at $63.97, nothing to really write home about, but you would think Iran nuked Israel the way the oil stocks jumped on the news today. I’m not saying the oil markets are manipulated... only because I already said it!

Poor gold is still trying to break through the 200 DMA but having no luck, even with a weaker dollar.

Today's Picks:

  • It was another great day for almost everything we picked, but a monkey with a dartboard could have picked winners today so I’m not all that proud. We made so much money on our Google Inc. (NASDAQ:GOOG) play that people don’t believe it’s real. Luckily it was posted on Yahoo on Monday, albeit a lot later than when I wrote it.

This is why I love Cramer: He says: “If your stock has anything in common with Krispy Kreme Doughnuts (KKD), sell it! For example, your stock may have financial statements... Krispy Kreme doesn’t!” That is just plain smart and funny!

  • In comments I liked the Trans move so much that we went for the Diamonds Trust Series 1 ETF (NYSEARCA:DIA) $115s for .70, hoping for follow through tomorrow (is that greedy?).
  • We took the money and ran on the NASDAQ 100 Trust Shares ETF (QQQQ) $39s though; $1.25 was plenty for that. We still have the $40s, now .25 (up .10).
  • Out of all our morning plays in comments, we decided the best one was going to be the ExxonMobil Corp. (NYSE:XOM) Oct $65 puts for $1.40, as the last time oil was at $64, it was on the way up in March and XOM was at $60. Most of the other stocks are retesting their March levels—I will be looking into this more later. I also like the XOM spread of the Oct $67.50s for $1 and the $62.50 puts for .70, although I would initiate a 3:2 put/call ratio, at least until the calls come down in price.
  • Whoever said beating a dead Caterpillar Inc. (NYSE:CAT) was a bad idea? Didn’t have the Oct $70s, now $1.15, up 30% today.
  • I waited too long on Florida Rock Industries Inc. (FRK) (we called it on 9/5 but forgot to play), so we will have to move to the Mar $45s for $2.70 as the October premiums are too high. The stock is trading at a current P/E of 12, right at the 2004 highs when earnings were about 75% less. The company had an 8% miss last quarter after a 36% beat the quarter before (bowling economics), and was quickly sold off 40%, a slight overreaction...

  • On the other hand, we didn’t wait for Eagle Materials Inc. (NYSE:EXP), picked the same day, and you can still get the Jan $40s for $2.45 (down 10%).
  • Yahoo! Inc. (YHOO) Oct $30s are cheaper than our pick at $1.15 (down 10%). If Google keeps it up, YHOO should rubber band. Baidu.com Inc. (NASDAQ:BIDU) is doing well also since Friday’s pick:

  • Bed Bath & Beyond Inc. (NASDAQ:BBBY) is just embarrassing at this point. The Oct $35s are $2.55 (up 110%), and we need to take half of the table or roll to the Oct $37.50s for $1 to lock in a 25% profit.
  • Force Protection Inc. (NASDAQ:FRPT) is fell back to $7.15 (up 10%). Yawn...
  • PetMed Express Inc. (NASDAQ:PETS) is moving slow but steady at $10.20 (up 6%), we may get called away on this one…
  • Bear Stearns Companies Inc. (NYSE:BSC) has earnings tomorrow, and the Oct $140s are already $3.20 (up 140%). Hopefully we won’t need the Oct $120 puts, now .75 (down 60%), and don’t forget this was a 3:2 call/put play.
  • Boeing Co. (NYSE:BA) made a nice move today that we caught early in comments. The Nov $80s were more conservative than we needed to be, now $1.95 (up 95%).
  • AAR Corp. (NYSE:AIR) is following BA up nicely, and the Feb $25s are up to $2 (up 40%). We need to check on our other Boeing Buddies™—Titanium Metals Corp. (TIE), Allegheny Technologies Inc. (NYSE:ATI) and BE Aerospace Inc. (BEAV).