After a four-day winning streak, the market was due for a pause as all three major indexes traded lower. A couple of crummy economic reports really set the tone today and the Dow didn’t even come close to sniffing positive territory. Jobs and Housing were the culprits.

The number of people that receive unemployment benefits continued to soar and is rapidly approaching 5 million. Another 200,000 and we are there. This is the highest level on record going back to the 60’s. Home sales plunged 15% to an adjusted annual rate of 331,000 in December. Although there was a report earlier in the week that said existing home sales rose last month, most were foreclosed sales. Toss in another round of layoffs from some of the majors and it was all said and done for the market before.

As a result, the Dow lost 226 points, or 2.7%, to close at 8,149. The S&P 500 dropped 29 points, or 3.3%, to finish at 845, while the Nasdaq gave up a Grant (-50), or 3.2%, and settled at 1,507.

The good news is we still made money, folks.

International Business Machines (IBM, $92.51, down $2.31) gave back most of its gains from Wednesday but were were able to close the the February 95 calls (IBMBS, $1.75, down $0.85) for over a 100% return. Our exit was $2.25 and we got into the position on Monday for $1.00. I provided an update before the market opened this morning because it appeared as though IBM would be hurt by the overall market sentiment.

I also gave an update on Goldman Sachs (GS, $82.72, down $4.98) and JPMorgan (JPM, $25.43, down $2.23) last night as it appeared that they would only be good for a one day pop. We did get the classic “buy the rumor, sell the news” today and we were stopped out of these positions as well.

The Goldman Sachs February 85 calls (GSBQ, $4.95, down $2.90) hit our stop of $6.50 which returned 35% from an entry price of $4.75. The JPMorgan February 26 calls (JSABI, $1.85, down $1.35) hit our stop of $2.75 and continued lower. The trade made 10% and I thought the banks stocks would be good for another day but the approval of the stimulus package took the wind right out of the sails.

One trade that is still working is Netflix (NFLX, $36.88, up $0.72). The stock managed a 2% gain in a lousy market and hit a high of $37.90. On Tuesday, I said the March 35 calls (QNQCG, $4.00, up $0.80) had a good chance of making it in-the-money when the stock was at $34.40. The options were going for $2.60 at the time and hit a high of $4.50 today. That’s a 50% profit. Get out at $3.50 if the calls start to fall.

The March 40 calls (QNQCH, $1.80, up $0.65) were trading for 90 cents and have doubled. The calls hit a high of $2.00 and if you have already sold these calls or have taken some off the table, good job. Otherwise, set stops at $1.50. What was interesting today is that there was call buying in Netflix all the way out in June. The March 50 calls (QNQCJ, $0.30, up $0.15) traded over over 400 contracts while the June 45 calls (QNQFI, $2.20, up $0.65) traded over 1,000 contracts.

If these calls continue higher you can move the stops up or sell some and let the rest ride..

Rick Rouse

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