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Wednesday Wrap-Up

I told you we would have to grind this one out!

That was a real squeaker – I didn’t think the Dow was going to make it at the end there…  15 components went down with just 13 positive with mighty mighty CAT leading the pack with a 2% gain and AA leading the losers by giving up the same.  Thanks to a little bit of Dow magic though, $42Bn CAT carries more than twice the weighting of $28Bn AA in the index (because it has a bigger share price) and the Dow managed to eke out a .56 gain for the day.

On the whole, it was a nice positive day:

How much does it cost to roll 32M barrels out of March? 

Well, selling 32M barrels out of March cost the NYMEX boys $1.17 on that contract but that just leaves 304M barrels rushing to Cushing on the 20th.  April was able to absorb 24M barrels after playing hot potato by trading 134M barrels back and forth to bring that total up to 171M barrels – more barrels than can possibly be delivered and we haven’t even activated that contract yet!  Even if they "only" roll 230M barrels out of the 304 open March NYMEX contracts, that will put us over 400M April barrels by Feb 20th – what a predicament!

4M barrels found their way to May (66M) so they "only" dropped $1.07 but June fell $1.17 to $59.58 even though they finally broke 100M barrels.  We had a good old time shorting oil today made even better by the side sport of watching CNBC spend the whole day trying to figure out what was going wrong.  As analyst, after analyst came in to tell us how scarce oil was and how dire the geopolitical situation, oil went down and down and down in the afternoon, triggering a nice little sell-off in our target stocks.

As I said this morning "I hear $56 calling for next week, but let’s break through $58.50 first before we start betting on it."  We got our break below $58.50 but we didn’t go crazy, we mostly day-traded ZMan’s picks for the day plus a couple I threw in served us very well –

  • BP $65 puts were done at $1.75 (up 21%) as we didn’t want to risk the overnight.
  • EOG $65 puts (2/1) gave us an exit at .85 (up 70%). 
  • PBR Mar $95 puts (2/6) were taken off the table at $3 (up 50%).
  • XOM $75 puts were picked up way after inventory for just .60 and finished at .95 (up 73%).

We still have our watch list and I fully expect to use it over the next week but we are exercising caution into the weekend (and we still have quite a few puts just in case).

Don’t blame the dollar for oil’s decline, it has problems of its own as we head into next weekend’s G7 meeting.  Perhaps it IS the G7 meeting itself that is causing concern as German finance minister Steinbruck said that "hedge-fund oversight should be part of G-7 discussions" or perhaps it was the fact that the ICE will open data to CFTC regulators – nothing makes those roaches scramble like the light of a Federal investigation!

"ICE expects to provide daily reporting at the firm, or trader, level in the near future," said Kelly Loeffler, an ICE spokesman. Currently, ICE and other exchanges only report at the clearing-member level, allowing for all sorts of shenanigans!

Gold was again rejected at $660 and copper was rejected at $250 and this could turn ugly fast if the dollar somehow recovers.


Our educational play of BOBJ had earnings today and it turns out to be a great example of why I don’t like open calls (or puts) into earnings!

The earnings were just what I expected, good but not so great as to make the stock run away.  After a nasty dip, the stock recovered to flatline at $38.71, just 1 penny higher than when we looked at it on Monday morning.

The 4 March $40 contracts that were discussed but not recommended were a $660 investment and held their value yesterday but dropped to $420 today ($1.05 each), losing 33% of their value as soon as earnings went past.  The trade could have been gotten out of for $1.35 for the first half hour of trading, which would have recovered $540 of the investment.

Was this better than having taken $4,000 to buy shares of BOBJ?  So far, no.  If you held the shares through the dip to $37.82 in the morning (just 2.5%) you would be essentially even now.  Remember, our goal here is to make $400…

However, on the trade I did recommend, the 4 April $40s dropped from $860 ($2.15 per contract) to $1.55 for a loss of $240 while the Feb $40s we sold for $400 ($1 per contract) came down to .35 for a $260 gain, up $20 for the total trade.   It’s not sexy but it sure beats a 30% loss on the open call and it’s also better than tying up $4,000 and sweating out the trade…

My total exposure on this trade is $460 and we will continue to follow it through as I am still confident in the stock as long as the Nasdaq holds up.

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  1. However, on the trade I did recommend, the 4 April $40s dropped from $860 ($2.15 per contract) to $1.55 for a loss of $240 while the Feb $40s we sold for $400 ($1 per contract) came down to .35 for a $260 gain, up $20 for the total trade. It’s not sexy but it sure beats a 30% loss on the open call and it’s also better than tying up $4,000 and sweating out the trade…

    Love your thinking Phil, can you give your thoughts on a put strategy

    Im sure Lawyers are pissed about this and wouldn’t be surprised if they are behind this story getting airtime. I smell senate hearing unless campaign contributions get in the way.
    Great piece tonight on CNN about insurance companies sticking it to people and making lots of profits by doing so. Insurance companies changed their stance on minor accidents and capped payment by judging the severity of the accident.

    MOT, may not be pretty but MOT is trying

    GSK just may be a buy, i like this OTC fat blocker. I think estimates are low in regard to sales. People pay hundreds for OTC weight loss products that dont work.

    Might not be a bad idea to keep an eye on AMD, true the industry stinks near term but i believe once VISTA gains traction and INTC gets rid of its dated inventory these stocks will move. Buy low sell high, philosophy i live by..INTC not moving to 45nm until next year and AMD coming out with the Quad core in July so there are catalysts.

    Why would GLW expand if there were any signs of a slow down, they are cranking and i love the stock
    GLW has a while to move but once CHINA starts making glass you know prices will fall dramatically

    Looks like IBM is concerned with G/M, seems they are keeping a strong hold on market share

    DELL doing well in China in the server market

  2. Love this blog, wealth of info

  3. Phil,
    If you had the opportunity to buy an IPO (SDXC) on Thursday at $17, what would the exit plan be? I’ve never had the opportunity to participate in an IPO and don’t know how they trade once they are on the market. Is there any typical patterns? It received a minor Cramer pump last Friday.

  4. IEDU will be interesting now that they own Think or Swim. JAN 08 Calls and maybe sell some near terms to reduce basis?

  5. CHL
    Here’s the first upgrade, coming from Morgan Stanley

    kustomz, neat, thanks! Wish I had seen this site yesterday with AH news on FEIC. =)

  7. HappyT

    WOW FEIC i followed them last year and they fell off the radar as i moved on to trading A, damn what a move!!!

  8. FEIC
    kustomz, yeah, even if we had just gone in this morning, it would’ve been a good daytrade, although, admittedly, it would’ve been gutsy. I checked out its options, the March 30s opened at $.7 and ended at $3.3!! Even if we didn’t catch it right at the open, I would’ve felt comfortable to buy at $1, for March. Would’ve been a quick triple!! =)

  9. HappyT we need to push Phil to get one of those gypsy psychics on board, that would have been the play of the week. I think we should be looking at Agilent they are similar in business.

    News on BA, British Air might be buying more Boeing planes……don’t forget to read the bottom part where the journalist takes a ride in the A380, last paragraph made me laugh. If they make this on time I’ll kiss a monkey.

  10. BOBJ puts – I still like them but we’ll see if they hold up on a weaker day.
    If I were going to go short on them, today would be the day to grab the April $40 puts for $2.50 as you can set a stop at $2 which should protect you to a breakout over $39. Over $39 you could just cash out or sell the March $40 put for $1.90(ish) leaving youself with a pretty cheap 1 month spread against the short March expiration (16th).


    I love the Motophones, if I they can modify it so I can count on the battery to lie dormant for 6 months I would certainly put one in my kids (5 & 6) backpacks, something I would never consider with a proper phone. 7-11 already sells effectively disposable phones but the key is either coming with a charge (like a disposable camera) or taking regular batteries as that’s your biggest problem for the 3Bn people who don’t have cell phones yet – it’s not that they have no one to call, they are electrically challenged.


    GSK – do we know it works? They have a pretty ugly chart with a middling market cap (PFE is 10, MRK 21) and just 5% growth next year despite what looks to be a good quarter.

    I’ve been seeing surprising numbers from them on Nicorette, NicoDerm and Zyban in Europe and was considering it a premise for anti-tobacco bets but I’ve watched these guys for a while and they’ve generally been disappointing, probably due to pipeline issues. Still they pay a 3.4% dividend, which makes me want to buy them on a nice dip, but not at the top of a range. The May/March $57.50s are a .60 spread for a gamble but earnings may be this morning, not the afternoon.


    If AMD can’t bounce off $15 it’s really over – I like the risk/reward on Jul $17.50s for $1.10 as $15 should hold up (SOMEONE must think $8.5Bn is a bargain for a company with $5.5Bn in sales!).


    GLW – you need to take glass more seriously, it is not China’s forte. Making LCD quality glass is a bit like making microchips, the tech is a little too intensive to lend itself to easy adoption with cheap labor forces. The second article is about a company making LCD TVs, I would be surprised if they are making glass – probably just another customer for GLW…


    Techtrader – good one, thanks!


    SDXC – If you are getting the IPO price at $17 it’s a reasonable gamble but you need to be an early seller into the initial excitement, taking at least half off the table to lock in some profit. With Cramer pumping it you should at least get a pop to $20 but notice both articles you sent give no indication of profits or earnings or prospects other than “It’s an IPO so it must be great!” My favorite way to play IPOs is usually to short them on the first day but mostly I stay away as you are dealing with tens of thousands of investors who have no idea what the company actually does or why they own the stock.


    IEDU – I use their basic service and the new platform is great! I also have to give them props for learning that I’m not going to buy anything else from them and they rarely ask anymore, which I consider a very good relationship.


    CHL – good for our FXIs


    I don’t need a ouiji board but you guys need to throw out some suggestions. One unfortunate thing about this format is I have less time for surfing than I used to so I miss some cool little plays like that.


    A380 – I’ll see your monkey and raise you a mule! Even if they get it flying where are they going to land it? Other than the few European airports that have made a commitment and some in Asia/PG, who is going to be redesigning gates to handle a super-plane that only uses it a few times a week.

    It’s a huge chicken and egg problem for Airbus and wait until you see the bad press when they try to put 600 people in a plane at one time (and with 100 first class seats I bet you I STILL can’t get an upgrade!). How does this mesh with any airline gate you’ve ever seen. Will the airlines triple the staff at the gate or willl you wait on a 200 person line to ask a question? Have you ever been on a plane that was waiting for the catering car? Times 3! What happens when they scap a flight? Do all 800 of you race to the customer service counter to try to get on the next plane? What redesigns of the luggage system are being put in place to handle 5-800 people’s bags on the same belt? How many additional customs agents will they put on staff every time an A380 lands in a foreign country – or will we just wait 2 hours?

    I know it’s a nightmare when 2 planes with 200 people land at the same time and hit customs, imagine 2 A380s dropping 1,600 people off at once!

    All the traffic flow studies they do rest on the fatally flawed assumption that these planes take off on time, land on time, have available gates and never break down. I’d say I would avoid them until they get the bugs out but I may be too old to fly by then…

  11. AET raised outlook. Calls on this today should be a good daytrade.

    DO beat and signed LOI for 730 mil contract.

  12. LVLT – any thoughts? Stock down 4% in pre-market, I know this was Cramer’s favorite little growth stock for 2007. I’m not good yet at Fundamentals. Any thoughts Phil? I like looking at the Pre-Market trading charts, and on this one I saw pretty buy buying with little selling, even though it is down 4%. .Could be the MM’s “painting the tape”.


  13. AET – I’m liking the whole insurance group again. I was about a month early with my “Portfolio Insurance” article I think – there were lots of still valid picks in there.


    LVLT – my thoughts are Cramer needs to spend less time at college parties and more time doing his own research. The guy is a genius but he’s relying on poor information on things he used to do himself. Since being off 4% is just .27 I really have no interest in getting involved in this one. The news is pretty bad with a miss, dillution and cuts – and we haven’t even heard the CC yet!

    If you are dying to play, look for a bottom around the beginning of the CC but I think there’s about 8,500 stocks I’d rather play today.

  14. Okay, will do. I like your call on AMD with the July Calls.