Options Trader: Wednesday Wrapup

by: Philip Davis

Wheee - What a wild ride!

As soon as we got rid of those pesky Europeans, our traders took control and turned the markets right around, it was great…

I’m still a little skeptical, especially with options expiration coming up on Friday but we’ll take what we can get in this amusement park, er, market. Speaking of amusing, we had a blast in the oil patch today as the inventories came in with a pretty big draw but not big enough to keep oil companies aloft in a falling market.

At 9:43, I said: "Energy stocks are acting worried ahead of inventory or they’d have a better pump. Look for Suncor Energy Inc. (NYSE:SU) to pick up if this thing is real for them."

Then at 9:49, I called the whole market down: "Sorry guys - I’m not feeling it - this is some pretty wimpy buying so far and if the oil guys think it’s a smart time to push crude back to $59 they are in for a nasty surprise. Goldman Sachs Group, Inc. (NYSE:GS) falling fast, Google (NASDAQ:GOOG) about to break below $440, The Bear Stearns Companies Inc. (NYSE:BSC), Merrill Lynch & Co., Inc. (MER), Morgan Stanley (NYSE:MS) all heading down - might be a good idea for some Diamonds Trust, Series 1 (NYSEARCA:DIA) $121 puts (.85) as a mo play."

At 10:03: "This can snowball into panic if we start losing our levels!" Well, snowball it did and we hit 11,950 just three hours later, but zoomed right back right at 1pm. Was all the selling pressure coming from Europe or were traders here waiting for Euro funds to stop trading before pumping up the markets? I must say, the suddenness of the turn took me by surprise and we were having chat issues today.

I ended up slow on the trigger of the puts, even though I said in the morning: "Unless we get some really good downside follow through, I will be done with my short positions and keeping tight stops on our calls but sitting mainly in cash and looking for some buying opportunities." Always stick to your plan unless you have a REALLY good reason to change it!

As I said in the morning, when you are in the periapsis of your orbit (closest to the primary) it does tend to look like you’re going to crash. The trick is not to crash and make a pass around the primary with enough speed to break free of its gravity (get to a higher trading range). It’s very much like a roller coaster that has to use the downward swing to gather momentum for the next ascent.

I’m sure you’ve all seen movies where the heroic spaceship passes dangerously close to a planet in order to "slingshot" into space - well I’ll tell you that today we were tree-skimming close today the tiles on our ship were glowing red hot:

Phil\'s US Markets

US Markets


Wow, that was pretty close wasn’t it? Luckily, we all had our seatbelts fastened and while I’m sure some of us were pretty disappointed we didn’t get a crash (because we had A LOT of put plays), it sure is fun to see the market come back like that, even if it is only for a day or two.

After lots of excitement, dropping all the way down to $57.30, but the pulled it out with the markets and got the close back to $58.16, up .23 for the day. It took 292M April barrels worth of contracts changing hands to manipulate the markets today - possibly a new record for churning (we’ll have to check with Guinness). There’s still a lot of open barrels (121M) scheduled for April delivery with just three trading sessions left to dispose of them. We’ll check out the barrel counts and see what shenanigans they play to close out the week:

• April Open: 120K $58.16
- 292K contracts traded today.
• May Open: 323K $60.47
- 199K contracts traded today.
• June Open: 129K $61.74
- 69K contracts traded today.
• July Open: 55K $62.68
- 18K contracts traded today.

Last month we learned that 41K seems to be the most that can actually be delivered to Cushing in a single month so it will be interesting to see where the barrel count ends up for April delivery. Since only 40Mb of crude can actually be delivered and there are 572M barrels on order for April, May and June alone - one can conclude that all this speculation and pumping has left the traders just a tad barrel heavy. This will all get very, very interesting come November as December already has 147,000 open contracts!

Gold dropped $6 today to finish down at $643 as the dollar closed weak and flat at 83.65, just another one of the little things that still bothers me about our rally.

Gold Dollar

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We got stopped out of a lot of puts today, which was what we expected to happen going in. But as I said, I got greedy and only stopped out on half, leaving perhaps a little too much on the table.

We did manage to close the following:


So on the whole, not a day you can complain about, but hopefully we learned a valuable lesson - stick to the plan!