Options Trader: Friday Morning Ideas

by: Philip Davis

Another fun week comes to an early close.

There's a lot to think about over the weekend. If we can keep going despite all the underlying economic issues, then we really may have finally broken orbit and are ready for our moon shot. As I said earlier in the week, I just need to see one 200-point up day to confirm weightlessness, but I'll be lining up new long positions over the weekend as there are a lot of stocks I want to buy on the road to 15,000.

Gravity Weekend 01 06 2007I say this despite the fact that the Shanghai B-shares sold off another 6.4% this morning as foreign funds continue to flee the Chinese market. A-shares dipped just 2.6%, down 112 for the day but down 224 points from the day's high. There is a lot of speculation that the market is retreating from the number 4,444 as 4 is a very unlucky number in China as it sounds like the word "death" ("si") in Mandarin. You may think this is wacky, but we were just joking this week about my gold target of $666, and how many elevators do you go into that have a 13th floor -- so let he who is without superstition cast the first stone.

The rest of the Asian markets held up very well, and even our beleaguered Toyota Motor Corp. (NYSE:TM) shares should get a boost today as the Nikkei picked up another 83 points, putting them back within spitting distance of 18,000. Of course their last visit to 18,000 ended with a 2,000 point drop in 5 days (how much would you be loving our DIA puts then?) back on 2/27-3/3, but let's all pretend that never happened and call this a healthy consolidation at 17,500. The dollar is dead in the water again as other countries have a more realistic view of our GDP than we do, and commodities are shooting up again but only in dollar terms, not a problem for the rest of the world...

Healthy dollar 01 06 2007Germany is up a point, the UK is flat ahead of our open, but our jobs report was great, up 157K with education jobs up a surprising 54K and construction jobs shockingly unchanged -- so we expect good things. There are only 2 charts I care about today, the SOX, which must take out 490 at least, and the Nasdaq, which needs to take out the upper Bollinger band at 2,605:

SOX Chart 01 06 2007

Chart 01 06 2007

The SOX have a mile to go, so my bullish call of the day is to take the iShares Goldman Sachs Semiconductor Index Fund (IGW) July $65s for $1.75, which we will be spreading with the eventual sale of the June $65s, now .80, since we already have the July $70s from a previous pick. .80 is a great buffer on this index, and we are .50 out of the money, so it would take quite a move for us to owe our callers any money.

Gas stocks] 01 06 2007Oil will do whatever it does. Frankly, there is too much money to be made in other sectors to worry about this nonsense. I will be taking some puts into the weekend, but only so I don't miss out if they have another nice Monday collapse. ZMan is on hurricane watch, but it's the drink, not the tropical depression that we expect this weekend! Natural gas storage is still within 8% of last year's all-time high, and 22% above the 5-year average, and crude stocks are at the top of the range, so OPEC is correct -- we have plenty of product, we're just not refining it!

Google (NASDAQ:GOOG) should open back over $500, and we'll see how Apple (NASDAQ:AAPL) handles $122, but it's all about the SOX today and we are so due for a nice breakout there!

Of course we will go into the weekend well protected, as this whole thing is still a house of cards that could collapse any moment. But this market is starting to look less like a bubble and more like a freight train if we can just get over this little hump. In the back of my mind I keep thinking of one of those roller coasters that suddenly reverses and goes backwards.

Have a great weekend,

- Phil