Options Trader: Wednesday Wrapup

by: Philip Davis

Was it something I said?

I have to pat myself on the back for saying at 1:28: "Diamonds Trust, Series 1 (NYSEARCA:DIA) like a coiled spring right now, up or down 150 very possible… I think having $122 puts (BQQOR - .65) and $123 calls (BQQCS - .75) que’d up and ready to go is prudent on the Fed announcement." Now if only I had pulled the trigger instead of thinking!

I made the mistake of actually taking the time to READ the Fed statement, which didn’t sound so rosy to me but obviously, what do I know? The market roared straight up to my 150 point target in less than 30 minutes. The $123 calls finished at $1.80 and the $122 puts held .25 of their value for a net profit of 45% so the lesson for next time is - take the darn spread and stop thinking…

Bull Market

My mistake (for the whole week actually) was to worry about the actual economy, which the Fed calls "mixed" and the problems in the housing sector, which the Fed calls "ongoing" (and they no longer see "signs of stabilization" like they did in the last report). For some reason the fact that the Fed sees recent readings on core inflation as "somewhat elevated" or that there is a "risk that inflation will fail to moderate" bothers me a lot more when all I should have been focused on was the fact that they replaced the words "additional firming" with "future policy adjustments."

Based on that last three-word change, the bulls ran wild and bought up pretty much everything in sight. As I said this morning, perhaps they were already there, looking to buy on any excuse. The reality check is that the Fed said "Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth." So if investors run right out and buy up the markets (economic growth) and spark a commodity rally (inflation) - doesn’t that pretty much guarantee a rate increase? Not to mention the collapsing U.S. dollar, which promptly dove through 83 on the announcement.

Oil did nothing on the day but the fact that it didn’t drop allowed the oil sector to go hog wild this afternoon. Of course, not dropping is a matter of opinion, but somehow they can take this chart and call oil +.41 for the day. Gold was unable to take $660 but the miners posted strong gains. Copper was down but those miners went up.


Phil\'s US Markets

US Markets

Wow - what a difference a week makes!

Nothing to complain about here other than my protective puts, but we’ll have to make a few adjustments if the rally continues. Because we were so well protected to the downside, being here (at a 50% retracement) doesn’t do us much good so we still hope the market makes a power move one way or the other.

With both Asia and Europe now having to play catch-up, it would be very disappointing if we don’t get another big open tomorrow.


We made just a few moves today, but I will have a lot of what ifs lined up for tomorrow morning on our portfolios.

I dumped our covers on the oil puts a little too early and now we have to keep tight stops on the remaining oil plays.

• ConocoPhillips (NYSE:COP) $65s were sold for $2.80 (up 40%)
• Tesoro Corporation (TSO) $95 puts were bought for $1.70 and quickly sold for $2.10 (up 24%)
- this was a DD to reduce the basis of the open TSOs to $2.10
• Exxon Mobil (NYSE:XOM) $70s were taken off the table at $1.45 (up 61%)