We did not take out our levels!
We didn’t like the way the market was looking in the afternoon, especially after DHI’s CEO Tomintz said ""I don’t want to be too sophisticated here,but 2007 is going to suck, all 12 months of the calendar year." I can’t wait to see how they write that up in the 10-Q! He said excess inventory, built up during a five-year boom cycle that saw land purchases and housing construction reach all-time highs, is the biggest problem facing the sector.
Still there was tremendous improvement in the LTP (which we didn’t touch), up to a 115% gain now and our now very bullish ST Virtual Portfolio held firm, as did our new challenge virtual portfolio so, rather than panic and dump positions, we took a cover on April DIA $120 puts for $1.40 as insurance.
As they say in the commercial, buying and selling stocks constantly doesn’t make any sense but taking insurance to protect your positions often does. No matter what the market does tomorrow, we’ve bought insurance that will protect us until April (and we can still sell closer puts against it).
The markets ended mostly flat and we are still looking for the same levels so we’ll just go over those in the morning.
Oil was a bit depressing, finishing just shy of $62 while gold punched back over $650 by $2. As I said on Tuesday morning: " The NYMEX barrel count is now more under control, which means there is room for major league shenanigans."
The oil inventory was a huge drawdown (4.8Mb crude, 3.8Mb gasoline and 1.3Mb distillate) due, in large part to imports being down 650Kbd from last week (4.5Mb) which was due, in another large part, to the Houston Ship Channel being shut down for part of the week. Refiners were down to 85.8% of capacity, which is about 25Mb per day so that’s 26Mb per week they’re not producing.
Even if they just put out one or two fires and started making product, say 90% utilization, that would add 1Mbd and we would have a weekly surplus (not that we really need it with 1.673Bn barrels in US storage). Of course, to say there’s no incentive to increase utilization is a major understatement – both VLO and BP had significant outages this week and and VLO is up 10% while BP is up 5%. If your stock performed that much better when you had a refinery on fire would you invest in fire extinguishers or matches?
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At least you can’t say we’re not flexible!
The oil drawdown was so severe that my only comment at 10:30 was "VLO Flying up! Major Draws!!!" (sorry WSJ, but that needed 3 exclamation points).
At 10:35 we went with VLO Mar $60s at .75, which turned out to be a great day-trade as we took a half out at .95 with the rest at $1.30 for a $1.12 average (up 50%).
We also covered out long XOM puts by selling the XOM Mar $72..50 puts for $1.40, which we later bought back for .80 (up 75%) both plays making a nice buffer to ride out the oil move that went against us.
We also jumped on some PTR calls and hopefully we’ll get some confirmation tomorrow from that side of the world otherwise we sell March calls against it fast!
Despite the market’s shoddy performance we picked up more calls in AXP, EBAY, ICE and the QQQQs – of the group, only ICE has me really worried after a terrible day.
