Yee-haw! Ride them markets!
Gosh this is fun! How can I complain about a day when my calls work AND my puts work?
We almost hit my levels on the indices and I’m tempted to say that almost doesn’t count but it certainly did help a lot, so we’re not going to complain about it unless we fail to follow through tomorrow.
- The Dow finished the day at 12,283, very nice!
- Tansports pooped the party at 2,649
- The S&P laughed off 1,400 and tested 1,410
- The NYSE blew right through 9,000 to 9,019
- The Nasdaq almost got me long but finished at 2,450
- Despite the SOX gaining 2% to 483
- The Russel made a new high at 795!!!
As I said in my very cautious opening statement this morning, “Since we are so near weightlessness, it is very hard for bad news to get a grip and a small booster rocket of good news can still take us higher.”
The boost came primarily from the noted M&A activity, the same fuel that got us going on Monday the 20th. As that lasted for 3 days, I’m not too worried about a quick fall today…
Despite that, I called for some protective DIA $122 puts for .35 (now .60) as we touched 12,300 – I did this more as a sign of confidence, as an alternative to taking some very nicely moving calls off the table!
Oil was kind enough to drop a dollar for us and finished the day at $62.49 as the dollar held firm to that 82.5 line. I cannot emphasize enough that oil has gone down every single day for the past 7 days in the eyes of foreign investors! That’s why the OPEC ministers are still freaking out – they are getting less Riyals for oil now than they did in October when oil was touching $60 a barrel for us.
That 3.5% drop in the dollar in the past 10 days should have boosted the price of gold $20 and it did boost it $30 so there is an element of sentiment shift creeping into gold as the dollar loses stability but a dollar bounce at this level should lead to a very quick correction back to $640 or less.
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So with all this good news, what’s with the puts?
I’ve been preaching caution for a couple of weeks now. As I said in the November wrap-up, we’ve moved the virtual portfolio to almost 50/50 put/call ratio and, of course, my commodity of choice to short is oil – even though it beats me down again and again and again!
Why do I do it? Well, gold is a hedge against inflation and if something terrible happens I don’t like to be short on gold (actually I like to have some usually, just in case). I haven’t had any gold (much) over the summer, because I felt the timing was off but we picked up NAK and MRB on 9/18 and again on 10/26 and 11/20 – a very good indication of my growing concerns about the dollar.
We’ve been daytrading NEM, so I don’t count that, but we took longer plays on GG and ABX (which we still have). So that’s my commodity up play as I think a slowing US economy will not drop gold, as it is the alternate safety net to the dollar (as they Euro seems to be becoming too!).
As to oil, those of you who were around in April, May, June and July know what we are waiting for as we were rewarded then with 4 consective months of doubles on oil puts also after a massive blow-off in early April.
The important thing to understand is that oil puts are a hedge to protect the postitive plays, they are not expected to make money while the bulk of the virtual portfolio is moving up but they sure do work great when the market turns!
XOM seems determined to test $80 because certainly it must be worth 70% more than it was on Jan 1st, having picked up the entire market cap of COP and CVX combined!
That’s right, without hiring a single person, adding a single well, discovering one more barrel (I’m pretty sure they’re not even looking) or cutting a single executive’s compensation package – without even a rise in the price of the asset they sell, without even projecting positive earnings trends for 2007, XOM has added, this year alone, the ENTIRE value of COP, who will sell $195Bn worth of oil this year at a $14Bn profit as well as the ENTIRE value of CVX, who will move $190Bn worth of oil with an $18Bn profit.
XOM manages all this without all that messy actual selling of more stuff, or adding to those silly reserves (I mean really, why bother?) or hiring the 95,000 people it takes COP and CVX to sell that extra $385Bn worth of stuff.
Congrats to all the XOM investors for seeing this cleverly hidden $200Bn in value that was totally missed by the markets as recently as July 1st, when oil was at $80 a barrel, you guys are truly market visionaries, boldly going where no investor has gone before – closing in on that magic $500Bn mark as this party is never going to stop – EVER!
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That being said we stay away from XOM as we are simply not sophisticated enough to understand the incredible value of that cartel great company. We did indeed make money shorting oil yesterday, as CVX got all uppity at 9:45, leading me to comment: “I can’t takeCVX anymore! I must buy the Jan $70 puts for .90 – it’s just too ridiculous!”
We quickly took $1.10 for half the position to lower the basis on the remainder to a comfortable .70 and stopped the rest out at .95 for a 36% gain.
I went back in on the same CVX Jan $70 puts for .90at the NYMEX close as I was unimpressed by the afternoon pump.
ANF (2/20) Feb $72.50s cost $2.80 and the Jan $70s only sold for $2.50 so we’ll see how this one goes…
ESV was kind enough to go down all day and we got in on the Mar $55s for $3.80(now $4 so still a good deal!). Unfortunately, I never got what I wanted for the Dec $55s so I’m stuck with just the longer calls at the moment. A purist would argue that the .80 I saved on the calls would have made up for the .80 I could still sell the closer calls for but I’ld rather wait as I really like this company and think it deserves better.
JOSB (Thursday) worked out very well yesterday, pulling back to exactly $29.69 as the low of the day (probably because we triggered there) while the Jan $30s came in at $2 (now $2.20) and we picked up $4.80 for the July $30s.
The OIH Dec $140 puts ran up to $1.25 and we were thrilled to exit them with a 25% profit.
OXPS had a great day yesterday, probably due to all the trades I made on their system! The Jan $30s finished at $1.20 (up 20%).
PFE settled down just .10 above my $23.50 target and the first thing we jumped on was the $25s for .20 (now .40). At 9:35 I said I wasn’t ready to commit to a longer play but just 6 minutes later we grabbed the Jan $25s for .55 (now .75) as it was firming up fast!
STN Jan ’08 $80s amazingly opened at $4.90 and the Jan $80s were sold for $4.70 so I’m in for .20 on the spread and the positions closed with a spread of $2.70 for a 1,350% gain on the day – not too shabby!
TOL Dec $30s stopped us out at $2.35(up 114%) which was just fine with me ahead of earnings, althought they turned out OK on the whole.
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We waited until 11:30 to take our first round of LVS puts (still a bit early it turns out) with the Dec $90 puts coming in at .95 in the first round and dropping to .85 by the time we took our second for a .90 total entry. The Jan $95 puts did not go much better as were were happy with a $5.10 entry until we got that second round at $4.50 for a $4.80 total.
If I were LVS I’d be worried about HET and STN going private and being able to commit capital to projects I couldn’t squeeze past shareholders in the quarterly reports. Private companies can make lavish bribes to Chinese officials and secure the best new spots!
I’m just waiting for someone to explain how this company is now worth $34Bn with $400M in earnings this year and $550M next year… Will they earn $1Bn in ‘08? That would still be a p/e of 34 vs a current p/e of 30 for MGM.
HETs current p/e is 42 (they are going private) but they took a huge hit last year and this year off the hurricanes and are projected for a p/e of 19 next year. WYNN has Macau exposure and a p/e of 15 but they are new and only in the black for the first time last quarter (where they earned $700M in just that Q against a $9.4Bn market cap, even after today’s 6% gain).
So I may be wrong about LVS today, but I feel pretty good that I will be right about them no later than the next earnings report.
