by Phil Davis - November 23rd, 2005 8:22 am
This is a long trade on my favorite oil stock and it’s tricky to do so we will track it like the Google spread play.
Valero is splitting (don’t know when) which will mean your options will split and your premium will increase substantially.
It’s a great stock with a lot of room to grow and I think this price (as long as oil stays above $55) is still a bargain.
This trade is for AFTER inventory and only if there is a draw down, indicating a change in market direction back to positive for oil.
I’m taking the January ’08 $90s for $31.20, a $19 premium over 2 years.
I’m selling the December $110s when they pass $2 and retrace .25 so as to maximize the premium I’m charging. I do not want this call to go positive on me so I will buy it back for a 50% loss ($3) if I have to because if the stock splits on you, this guy will make out like a bandit and eat up all your profits.
The goal is to sell more than $31 worth of calls before Jan ’08 leaving us with a free (or 2 free $50) $100 call on a stock that has gone up 20x in 10 years.
At the moment, I will only want to sell way out of the money calls, but if the stock turns on us, I will be looking at some more interesting tricks.
It looks like yesterday’s Trade of The Day #3 is a grand slam! RIMM is getting hammered in the pre-market, now I’m glad I went with my gut and rode out the head fake!
Since I am getting on a plane, I am going to take my huge profit off the table early and reinvest 30% of the profit in some cheap, out of the money calls. If this thing goes it will collapse fast but it also could turn back on a dime with a posive announcement of a deal with NTP (but I doubt it).
It’s hard to call because of the massive move but it looks like I will be exiting my $65 puts for a nice double at $7 and I will look to pick up about the same number of $50 puts for $1.20 so if the stock goes down to $40 I will only be missing $7 of the…
by Phil Davis - November 23rd, 2005 7:33 am
Like any good trader, today is the start of my vacation so I probably won’t be posting again until Tuesday.
The market is kind of wacky around a holiday anyway so it’s a good time to stay out.
The only play I’ll be watching on the way to the airport is oil.
If there is any kind of draw in oil or distillates it will be a surprise and could really goose the industry. The same oil list as yesterday would apply with the Valero Rule being in full effect (VLO was up $3.30 yesterday).
XOM and COP are dragging their heels, they are just not buying into this “oil fad” but, if the price of oil goes up, Valero goes up and the inventory draws down (dollar is declining a bit which will keep oil from dropping much no matter what) then XOM and COP will play catch-up with a big move.
Think of gold as an international game of poker with the rich Arabs just sitting down at the table. They did a little buy-in yesterday and now we will give them a chance to win buy giving away some cheap holiday gold. Then we run gold up to a new record, let them get all excited about how easy this game is and, once they are all in, we drop the price and take their cash.
Don’t be too greedy as this is a game for big boys but it will be a lot of fun to watch the action. Perhaps we can figure out how to televise it with celebrity palyers and call it Celebrity Futures Showdown or something.
Have a very happy Thanksgiving,
by Phil Davis - November 22nd, 2005 4:39 pm
The FRK $46.63 call is up to $6, almost a double…
I would strongly suggest a .50 trailing stop here to preserve a $2.20 gain. No sense being greedy, if it pulls back we just wait and reenter when it’s safe.
Update on the Google Spread
Last Friday we were here:
Buy the March ’06 $450 call for $17 // Now at $19.20
Sell the January ’06 $470 for $5 // Now at $5.60+
Buy the March ’06 $360 put for $14 // Now at $14.50
The $360 put peaked out at $17 and we stopped out at $16.3o yesterday for a $2.30 profit.
The $450 never dropped back to $17 (lucky for us) and is now worth $26, a $9 profit!
We can’t sell it though because we have the obligation on the call we sold. The $470 is now worth $8.60, a huge profit for that guy!
At this point we can buy him out and close out, taking the $3 hit to our $11.30 profit or we can wait it out. I’m for waiting it out with tight 10% stops. If our friend ends up in the money, we will always have a $25-35 advantage in the least.
So that’s a nice $8.30 profit on a $28 investment in 2 trading days – not a bad way to hedge!
Tomorrow will be very dicy with lots of optionholders being forced to sell shares they can’t afford but the buying has been intense so I couldn’t tell you which way to play it!
by Phil Davis - November 22nd, 2005 4:00 pm
Wow! What a day that was.
The lows, the highs…
A few disappointments but nothing I wanted to dump based on a day’s trading. I did exit my long on Genzyme as it was the exact opposite of the umbrellas I mentioned earlier.
Bottom fishing winners: CVC (1%), AGEN (6%), FMTI (1.6%), JAS (1%), FRN (.6%), SGY (1.4%), the only loser was CMRT but one day someone will realize they sell Toyotas too!
Overstock was a disaster! But at least it opened that far down. The December $40s have too much premium ($2.60) for my taste so I never entered.
MRB had an exciting morning but ended flat – I still like this one.
NGS opened way up and stayed there. Chart looks good, not great. A lot will ride on tomorrow’s oil report, not sure what happens to Thursday’s gas report with holiday.
Like I said, all you needed was a monkey and a dartboard to make money on oil today.
MUR really got going with XTO, HAWK, DO and HAL all picking up 4%. BTU also made a good move and the best thing was they had a slow start so we all had plenty of time to buy!
SBUX was rejected at the high so no buy. Long way to go on a pullback.
WFMI might be out of gas.
RIMM has a bit of a GM feel to it. Everyone is scrambling to assure the investors but she’s taking on a lot of water. I pulled the stop so I’m holding on to it with a painful loss. Had I listened to my 10 oclock self I could have saved myself .80 on the option.
Always remember Rule #2: Do as I say, not as I do! One day I will listen to myself.
Even if RIMM settles, the deal looks like it will cost them 2 year’s profits. That’s not good!
by Phil Davis - November 22nd, 2005 2:01 pm
See, good Fed news!
It was really tough riding today out but now we will be rewarded.
Some Fed members are concerned about “Going to far” and they say there will be a language change “soon!”
Stock party at my house, everyone can come…
by Phil Davis - November 22nd, 2005 12:05 pm
On a blah market day I like to watch the ticker for stocks that can keep you dry when the market starts to rain.
A lot of my favorites are there:
When your virtual portfolio is down, write down 20 stocks (that you like) that are up that day. Ones that appear on 7 out of 10 lists are excellent ones to balance out your virtual portfolio.
by Phil Davis - November 22nd, 2005 10:54 am
Sometimes I find myself watching the Dow (like today) and hoping it can go up otherwise “the market is in trouble.” Then I kick myself and try to remember how silly this index is in today’s world.
The Dow is made up of some of the worst moving companies in the world. In their search for stability, the Dow has given us consistent lethargy instead. Since the Dow is still the key index that drives all news, people get a very false impression of “what the market is doing” by overemphasizing this index.
We have companies with unions problems aplenty, companies that are generally over 100 years old with most of their growth behind them, companies with hundreds of thousands of employees who are, for the most part, ill suited in today’s rapidly changing business environment.
Some of these companies cancel each other out, like Dupont and Exxon, while others are practically twins: VZ/SBC, Pfizer/Merk, Citigroup/JPM, UTX/BA, P&G/J&J…
If this were your virtual portfolio, you would surely want to swap either Merk of Pfizer with DNA or GENZ. Altria has been in years of litigation and should have gone years ago. Disney, MSFT, IBM, KO and INTC all dominate spaces in such a way that real growth is hardly possible.
I would certainly replace GM with Toyota but I’m sure I would be arrested under some clause in the patriot act. The reality is that Toyota will soon employ more Americans than GM.
So don’t let the Dow get you down but also remember, it has that effect on everyone else. On a day like today when I am hoping for a turnaround, I watch the Nasdaq and the S&P – the Dow is a follower of those stocks, it hasn’t been a leader since the 70′s.
SBC – SBC Communications
GM – General Motors
MO – Altria
MRK – Merck
VZ – Verizon
JPM – JP Morgan Chase
C – Citigroup
DD – DuPont
PFE – Pfizer
GE – General Electric
KO – Coca-Cola
HON – Honeywell
XOM – ExxonMobil
BA – Boeing
AA – Alcoa
PG – Procter & Gamble
JNJ – Johnson & Johnson
MMM – 3M
by Phil Davis - November 22nd, 2005 8:49 am
Thinkequity just gave a very nasty (and well-deserved) downgrade to RIMM with a plunging target of $45.
Citing the lawsuit (of course) and a crush of new competition, the analyst was just on CNBC yelling abandon ship.
I will be jumping on this one because I was liking the short anyway as it bounced hard off the 50 dma of $67.50 yesterday.
Unfortunately it might open very low so this one will require some finesse, check the comments on this log for a play by play.
by Phil Davis - November 22nd, 2005 8:01 am
CY – looks like today’s the day!
IMAX – finally overcoming the sellers.
SU – I missed this one in my oil picks, goes up and down directly with price of oil
TIVO – people are warming to their new plan. Apparently the Financial Times read my column yesterday and published an almost identical one today!
If you didn’t yesterday, take those housing profits off the table today, rates may go up greater than expected.
I don’t think TWX is actually going to sell AOL. Maybe a partnership with MSFT or GOOG, that might be a win/win if MSFT but GOOG is already a defacto partner so they can only lose. I would think Microsoft wants it more and they are much richer (have you ever won an auction against someone who wants it more than you and is much richer?).
BA will be the clear winner as US airports will not put up with the Airbus 380 on many levels.
Canada Bird Flu scare = BCRX back in play.
If SBUX blows through its high of $32.13 then Buybuybuy (but I told you so on Sunday)
There is a line around the block at NY ToysRUs for the Xbox.
WFMI is looking like its overbought again! I would love for it to fail to test its $152.67 high so I will be watching it closely. It may be out of gas right here though.
XTO is another oil play I like.
There is a rumor that Intel/Micron are already in bed with Apple, this will really rock MU stock if true because it’s all about the future.
I think this is going to be one of those days where the market gains strength all day. I know I’m the only one saying this but I feels it in my bones!
by Phil Davis - November 22nd, 2005 7:39 am
OMG – I forgot all about BTU!
Every time they get to the low 70s (well, the last 4 times anyway) they bounce back to $80.
The stock did this even as oil was going down, with oil going up I will be buying with great confidence the December $75s for $4.40 (an outrageous $2.80 premium) and looking to get out as the stock hits its 50 dma of $78.75 (but probably with a .50 trailing stop).
Remember the Valero Rule for all energy trades! Should not be an issue today.
MU will also be a good mover today, but we should have gotten it yesterday when the announcement of their partnership with Intel put a knife in SNDK.