Options Trader: Monday Wrapup

by: Philip Davis

That went just fine... I guess...

Our indexes all made modest gains as no one wanted to commit ahead of the Fed and the energy sector was saved by (surprise) a Merrill Lynch & Co. Inc. (MER) upgrade just ahead of options expiration! They upgraded multiple companies while the ever unbiased Petroleum Industry Research Foundation, an "industry-financed think tank" (I wish I were making this stuff up but it really is this crazy!), says (surprise) "The problem is, who expects a surprise-free environment?"

The problem is guys, it's not a surprise if you pump oil every single time it goes down! I have kids, the first 100 times it's cute, after that we tell you to go do your show in the bedroom!

There were no surprises in the indexes as they challenged no highs or lows so we'll skip them, as we all wait on tomorrow's big data day.

The dollar did just what we thought it would do today, ran up to 83.67 and bounced back to 83.20 (down .14%) as it had no real reason to go any higher.

That gave gold a small breather and it managed to eke out a small gain ($3.90) and finished the day right at $630 after bouncing off $625 at the open. Notice the fiendishly low volume though -- that contract is toast! The action has moved to the February contract (I don't know why not January) so let's keep an eye on that at $634.

There's still plenty of action in December oil as traders are scrambling out of positions. Oil dropped .81 today after pumping all the way up to $62.15 and settling out at $61.33, unable hold our $61.69 watch level that we set about 2 months ago.

The other contracts are moving pretty much in tandem today, but the contango spreads starting in January (Feb $62.36-Jan $61.33) go as follows: $1.14, .90, .71, .60, .52, .47, .42, .26, .33, .20, .25... So they've resolved the negative numbers, but that's not too much money to have you store a 42 gallon drum that's tying up $2,600 of your cash is it?

Now try buying them in lots of 1,000 and see how well you sleep at night (especially with global warming giving us t-shirt weather in mid December!). There are still 213,011 open contracts for January delivery. At 1,000 barrels a contract that's a lot of oil heading to Oklahoma next month -- I hope you guys are thirsty!

Meanwhile, it looks like we could have saved you the trip from the Middle East as APC and DVN just made another major find in the Gulf! That's 9 out of 12 drills this year that have come out positive with this one having "more than 250 feet of net oil play." That's Green Canyon block 955 for those of you marking your maps -- wont it be funny if 75% of them continue to yield oil?

Oil Dollar Gold 12 12 06

As the markets didn't do much today, we didn't do much either, but we did manage a few trades to pass the time.

  • At 9:49 I said "Valero Energy Corp. (NYSE:VLO) knows something -- watch your puts!" and taking December off the table was fairly good idea for the day.
  • Options Trader 12-12-2006 01

  • I thought AFLAC Inc. (NYSE:AFL) was doing great but it ran out of gas at 11 and the May $45s finished flat at $2.10.
  • Options Trader 12-12-2006 01

  • Allstate Corp. (NYSE:ALL) went the wrong way.
  • American International Group Inc. (NYSE:AIG) flew out of the box but the Jan '09 $70s came in at a comfy $10.60 and were offset by the Jan $70s sold for $2.20. The Feb $75s opened too high to trade but should be picked up on a pullback.
  • Options Trader 12-12-2006 03

  • We covered our Best Buy Co. Inc. (NYSE:BBY) Jan $55s into earnings by selling the Dec $55s for $1.20, reducing our basis to just .40 ahead of earnings.
  • Chubb Corp. (NYSE:CB) went nowhere and neither did the Jan '08 $52.50s which filled at $4.60.
  • Genworth Financial Inc (NYSE:GNW) went up nicely but the Mar $35s held .75.
  • Infosys Technologies Ltd. (NASDAQ:INFY) was weak all day and we passed.
  • Intel Corp. (NASDAQ:INTC) was a pass on weak SOX action.
  • Microsoft Corp. (NASDAQ:MSFT) Apr $30s came in at $1.25 and finished at $1.50 (up 20%).
  • Oil Service HOLDRs ETF (NYSEARCA:OIH) Dec $145 puts were done at 1.75 (up 75%)
  • Our Phelps Dodge Corp. (PD) Dec $120 putter came off the table at .60 (down 90% -- for him!). That left us with a basis of $3.20 on the Jan '08 $120 puts, now $8 (up 150%). I left them on the table for one more day as I hope a dollar move sinks copper too.
  • I picked up some NASDAQ 100 Trust Shares ETF (QQQQ) Jan $45s, already down to .60 (down a dime).
  • AT&T Inc. (NYSE:T) Jan $35s finished at $1 (up 25%).
  • Progressive Corp. (NYSE:PGR) Jan '08 $25s came in at $2.
  • We are waiting on SanDisk Corp. (SNDK), currently watching the Jan $45s hopefully for $1.50, and we discussed a spread with the Dec $45s if it starts to take off.
  • Sears Holdings Corp. (NASDAQ:SHLD) Jan '09 $190s finished at $34 (up 13%).
  • Sunoco Inc. (NYSE:SUN) Dec $70 puts finished at $3.70 (up 111%).
  • Thomas Weisel Partners Group Inc. (TWPG) Jan $35s held .85.
  • I felt brave and grabbed the Texas Instruments Inc. (NYSE:TXN) Apr $27.50s for $3.30 ahead of the CC (wish me luck after that one!). I did protect with the Jan $27.50 puts for .35 but I also took the Jan $30s for .60. On the whole, could be trouble...
  • As I still had my covers in place (ExxonMobil Corp. (NYSE:XOM) and Chesapeake Energy Corp. (NYSE:CHK)) I took some VLO $55 puts for an average of .58, now down .18.
  • Energy Select Sector SPDR ETF (NYSEARCA:XLE) $60 puts came down at .80 (up 23%).

Read all of Phil Davis's articles on Seeking Alpha

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