Turnaround Tuesday!

Wow! That was an amazing day. I really didn’t think GS could spark that kind of rally. The Dow broke 11,100 by 50 pts, which is huge. The Nasdaq broke through 2,280, where it had been having trouble and made it to 2,295, just under our rally ceiling. The S&P was also strong all day, finishing just inches from a 4 year high at 1,295. Despite oil getting pumped back up to $63, despite the current account deficit running up 21% to $804Bn, and despite retail sales dropping 1.3% (worst since 9/11) people just decided today was the day to buy stocks. Go figure, I missed it. I also missed Google reacting that strongly to settling with the DOJ as the whole thing was a non-event as AOL, Yahoo and MSFT already complied but there was a buying frenzy as soon as the court adjourned. Once again the Congressional hearing with the oil companies was mainly PR for the oil companies, this really shocked me and gave the oil patch a huge relief rally. I’m not loving my cash as much as I was but I am in no mood to short oil the way that sector is coming back. Tomorrow we are looking for a 2M barrel build in inventories and a 2M drawdown in distillates. I still need one more day like this to really start believing that the market is a safe place for my money. Tomorrow will be very telling as we are now sitting right on all the upside technicals. ===================================== Since I have been advocating cash, I’m not going to review trades we didn’t make but feel free to ask about stuff in the comments. Instead we can review the Google spread we were looking at last night. Google is the greatest example on ever on why spreads are good sometimes: This morning my target for selling my $330 puts was $329 but we never made it that far ($333 at 10:40 was the low) so I stopped out at $335 a little later with a decent gain and a lot of relief as I had really loaded up yesterday when the stock hit $345. I wish I had more faith in the upside as the $360s doubled but I could have also had the $350s for almost nothing earlier in the day. I did buy some $340 puts as it went up but I gave up on them when they lost 20%. I sold half my $360s near the close for $2.50 which still left me with a good chunk of free calls but nothing on the downside – who would have thought I would end up long on Google! I still have no faith in the stock and will probably try to collar it in the morning as none of the fundamentals have changed but it sure was a great way to flush out all the shorts! How would our Monday spreads have done? Spread #1 At $337 we bought the stock and took (1.5x) June $330 puts for $25.25. The Stock finished at $351 (up $14) and the puts finished at $18.50 (down $10.50) In this trade you would have been a little worse off if you took the Jan $320 for $62 instead of just buying the stock (closed at $75.50, up $13) but better off as a percentage invested. This is, of course, assuming you took no action at all as the stock put both positions well in the money today! You may think this is a long way to go to make $4 but that’s still 1% in a day which would work out well if you compound it over a year… I still feel this rally in Google was way overdone so I would take my $4 profit and up my puts. Spread #2 At $337 we shorted the stock and took (2x) June $380 calls for $15.20 (they opened low) The stock finished at $351 (down $14) and the calls finished at $19.50 (up $8.60) On this trade the Jan $350 put opened at $50.60 and lost $6.60 for the day so this would have been better off without shorting the stock directly. On this trade I would set a stop on the calls at $18.50 and I would be very ambivalent about the direction tomorrow as I now make more money on the upside… Not bad considering we were expecting it to go down and we got totally smoked!